Global versus Local ESG Ratings: Evidence from China

ABSTRACT We compare the ESG ratings of MSCI, a global rater, with those of SINO, a local Chinese rater, to evaluate their effectiveness in capturing ESG risks within the Chinese context. Using ESG issues revealed in negative incidents as a proxy for ESG risk, we find that the ratings from the two raters often diverge, with SINO generally outperforming MSCI in predicting ESG risks in China. This divergence is more pronounced for firms with extensive ESG disclosures and when there are significant differences in how the raters define and measure ESG issues. Distance-based information asymmetry does not appear to play a significant role in explaining the performance gap. The advantage of local raters likely stems from their flexibility in tailoring methodologies to reflect country-specific nuances. In contrast, global raters adopt consistent methodologies to meet investor demand for comparability, but this approach may inadvertently reduce their relevance for capturing localized ESG risks. Data Availability: Data are available from sources identified in the text. JEL Classifications: G14; M4.

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Publication Details

Journal
The Accounting Review
Published
2025-03-11
DOI
https://doi.org/10.2308/tar-2022-0703
Citations
49
Primary Topic
Global trade and economics
Type
article
Field-Weighted Citation Impact
148.09
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article

Global versus Local ESG Ratings: Evidence from China

Jeff Zeyun Chen, Aaron Yoon, Ting Mao, Zengquan Li
49 citations
The Accounting Review
Global trade and economics
148.09
article

Global versus Local ESG Ratings: Evidence from China

Jeff Zeyun Chen, Aaron Yoon, Ting Mao, Zengquan Li
article en
49 citations

Abstract

ABSTRACT We compare the ESG ratings of MSCI, a global rater, with those of SINO, a local Chinese rater, to evaluate their effectiveness in capturing ESG risks within the Chinese context. Using ESG issues revealed in negative incidents as a proxy for ESG risk, we find that the ratings from the two raters often diverge, with SINO generally outperforming MSCI in predicting ESG risks in China. This divergence is more pronounced for firms with extensive ESG disclosures and when there are significant differences in how the raters define and measure ESG issues. Distance-based information asymmetry does not appear to play a significant role in explaining the performance gap. The advantage of local raters likely stems from their flexibility in tailoring methodologies to reflect country-specific nuances. In contrast, global raters adopt consistent methodologies to meet investor demand for comparability, but this approach may inadvertently reduce their relevance for capturing localized ESG risks. Data Availability: Data are available from sources identified in the text. JEL Classifications: G14; M4.

The Accounting ReviewVol. 100(4)
Texas Christian University (US), Shanghai University of Finance and Economics (CN)
Openalex Percentile: Top 0%
Global trade and economics
148.09
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