ESG Rating Divergence and Banks’ Loan Decision-Making Process: A Psychological Perspective

Using data from Chinese listed non-financial firms from 2015 to 2023, this study examines how environmental, social, and governance (ESG) rating divergence affects banks’ loan limit decisions and the underlying decision-making mechanisms within the sustainable finance system. Drawing on cognitive psychology, we conceptualize bank lending as an organizational decision-making process in which conflicting ESG signals create information ambiguity and influence banks’ risk assessments. Greater ESG rating divergence is associated with significantly lower total annual bank loan limits. Mechanism analyses provide evidence consistent with heightened bank concerns about firm default risk, whereas we find no supporting evidence for the information-quality channel captured by discretionary accruals. Further analysis reveals an asymmetric response to conflicting ESG information: banks appear to place greater weight on relatively unfavorable ESG ratings, while favorable ratings do not exert a comparable moderating effect. The negative association between ESG rating divergence and bank loan limits is more evident among non-state-owned enterprises, firms with weaker repayment capacity, firms with lower financial information disclosure quality, and firms without third-party ESG assurance. These findings extend the literature on ESG rating divergence and sustainable finance by showing how conflicting ESG information is associated with contractual credit allocation through banks’ risk assessment and asymmetric information-processing behavior. They also highlight the importance of improving ESG information governance and banks’ capacity to evaluate inconsistent sustainability signals.