How Do Companies Respond to Environmental, Social and Governance (ESG) ratings? Evidence from Italy

Abstract

While a growing number of firms are being evaluated on environment, social and governance (ESG) criteria by sustainability rating agencies (SRAs), comparatively little is known about companies' responses. Drawing on semi-structured interviews with companies operating in Italy, the present paper seeks to narrow this gap in current understanding by examining how firms react to ESG ratings, and the factors influencing their response. Unique to the literature, we show that firms may react very differently to being rated, with our analysis yielding a fourfold typology of corporate responses. The typology captures conformity and resistance to ratings across two dimensions of firm behaviour. We furthermore show that corporate responses depend on managers' beliefs regarding the material benefits of adjusting to and scoring well on ESG ratings and their alignment with corporate strategy. In doing so, we challenge the idea that organisational ratings homogenise organisations and draw attention to the agency underlying corporate responses. Our findings also contribute to debates about the impact of ESG ratings, calling into question claims about their positive influence on companies' sustainability performance. We conclude by discussing the wider empirical, theoretical and ethical implications of our paper.

What explains the emergence and diffusion of green bonds?

“…in the expansion of SRI (e.g. Ayling & Gunningham, 2017;Campiglio et al, 2018;Clementino & Perkins, 2020;Jackson et al, 2020;Slager & Chapple, 2016). Multiple studies also investigate the correlation between sustainable investment strategies and financial returns, with the majority finding a non-negative or positive relationship (e.g.…”

A Concretizing Research on Making Higher-Education Sustainability Count

“…As for the initial concept of ESG, ESG was mentioned in the 2004 official report of United Nations Global Compact to provide a series of the briefly invested standards of the principles for responsible investment principles (PROP) for most of business investors and commercial analysts [25]. Significantly, ESG has been currently applied for evaluating the corporate sustainability investment flexibility in many famous assessed companies and associations.…”

The Politics of Reactivity: Ambivalence in corporate responses to corporate social responsibility ratings

“…Recent qualitative and theoretical work focused on fields in which multiple ratings for a similar feature coexist, such as in the CSR context, suggest that under such circumstances, ratings may be more actively resisted (Clementino & Perkins, 2020;Pollock et al, 2018).…”

“…using only the most flattering scores from CSR ratings), our two other responses extend this repertoire. Grumbling, despite being a symbolic rather than substantive form of resistance, makes explicit the questioning of the usefulness and the rationality of ratings (Clementino & Perkins, 2020). Microstatactivism suggests that an externally perceived acquiescence to institutional pressures may be explained by the interests of internal actors seeking to use specific demands from the institutional environment to enhance their own status or initiatives within their organizations.…”