A legal origins perspective on ESG rating disagreement

Firms’ environmental, social, and governance (ESG) scores vary significantly across rating providers. This article considers the legal origins theory as a potential factor influencing ESG rating disagreement . By comparing ESG scores from five reputable rating providers – Bloomberg, S&P Global, LSEG, MSCI, and Sustainalytics – for a sample of 2392 public firms incorporated across 53 countries, we find that correlation disagreement between rating providers is lower for civil law firms, while dispersion disagreement across rating providers is lower for common law firms. This suggests, firstly, that civil law firms are influenced more by shared factors such as national policies, regulations and industry practices, leading to higher correlations in ESG scores between rating providers, and secondly, that common law firms engage in more independent and firm-specific ESG efforts, resulting in lower ESG dispersion across rating providers. • We define two dimensions of ESG rating disagreement: correlation disagreement and dispersion disagreement. • Civil law firms show lower correlation disagreement and higher dispersion disagreement in comparison with common law firms. • We find evidence that better climate policy performance may mitigate dispersion disagreement in civil law firms. • Sectors more exposed to sustainability issues have lower dispersion disagreement. • Results may reflect gradual implementation of rapidly evolving sustainability regulations in civil law countries.