Comparative Analysis of ESG Ratings and Their Impact on Equity Valuation

In accordance with studies on 2,000 large-cap corporations headquartered in nearly 50 countries, significant differences exist in ESG disclosure quality and transparency. This article aims to conduct a comparative analysis of ESG ratings and their impact on equity valuation. By analyzing factors influencing enterprise valuation and theoretical frameworks explaining the potential links between ESG and corporate valuation, addressing a critical blank space in existing papers. It contributes to redefine how ESG factors influence corporate performance and equity valuation, providing valuable perspectives for policymakers, investors and managers navigating the evolving landscape of sustainability. Furthermore, this article proposes some targeted policy recommendations. For instance, incentivizing sustainable practices can promote the importance and accuracy of ESG indicators in equity valuation. Governments can develop fiscal incentives for corporations adopting robust ESG practices. Tax breaks or subsidies can be typical examples. This would encourage more enterprises of various ownership types to prioritize sustainability in their operations and reporting.