Can environmental, social, and governance rating divergence harm the green total factor productivity? Evidence from Chinese listed firms

In the context of global climate change and the growing emphasis on sustainable development, green total factor productivity (GTFP) is increasingly recognised as a critical indicator that integrates both economic efficiency and environmental performance. Meanwhile, environmental, social, and governance (ESG) ratings have become an important reference for investors and corporate decision-makers. However, there are notable inconsistencies in ESG scores across different rating agencies, due to divergent evaluation criteria. This paper explores the impact of ESG rating divergence on the GTFP of Chinese A-share listed firms for 2015 firms between 2013 and 2022. The empirical results reveal a significant negative relationship between ESG rating divergences and GTFP, indicating challenges to sustainable development. Transmission mechanism analysis suggests such divergences are conveyed through increased financing constraints. Nevertheless, market attention and a firm's innovation capacity can mitigate this negative impact. Furthermore, this relationship between ESG rating divergences and GTFP exhibits heterogeneity, as it is not observed for firms in primary industries, central, western regions, non-state-owned, non-high-technology sectors and polluting industries. These findings provide evidence for the necessity of standardised ESG rating disclosure to enhance the reliability of ESG assessments.

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