ESG Rating Disagreement and Risk Mitigation: Implications for Sustainable Financial Stability

Suthiksha E

Department of Management Studies

CMS Business School, JAIN (Deemed-to-be University), Bengaluru

Under the Guidance of

Dr. Tejaswini S,

Assistant Professor

Faculty of Management Studies, CMS Business School

Manuscript Type: Empirical Research Article

Abstract: Environmental, Social and Governance (ESG) ratings have become a critical input for investment decision-making across global financial markets. However, a growing and largely unresolved concern in this ecosystem is the substantial disagreement in ratings assigned to the same company by different agencies. This study examines the extent of ESG rating disagreement among three major rating providers — MSCI, S&P Global and Morningstar Sustainalytics — for 50 Nifty 50 companies and analyses its implications for financial risk and sustainable financial stability. Using secondary data for FY 2022–2025, an ESG Disagreement Score is computed as the standard deviation of normalised ratings across all three agencies. Six hypotheses are tested through descriptive statistics, Pearson correlation, independent samples t-tests, OLS regression and moderation regression. The findings reveal that ESG rating disagreement is substantial and statistically significant, with a mean score of 14.13 against a benchmark of 5.0 (t = 17.17, p < 0.001). Higher disagreement is positively and significantly associated with stock return volatility (β = 0.611, p < 0.001) and market beta. Moderation analysis confirms that genuine ESG strength buffers the adverse financial effects of rating disagreement. Sector-wise, Metals, Energy and Logistics face the highest disagreement and risk, while IT Services and FMCG show the lowest. The findings carry meaningful implications for investors, corporate managers, and regulators in the Indian capital market context.

Keywords: ESG rating disagreement; financial risk; stock return volatility; Nifty 50; sustainable finance; moderation analysis