Will Informal Institutions Affect ESG Rating Divergence? Evidence from Chinese Confucian Culture

Abstract

As the concept of “dual carbon” deepens, the ESG rating system has emerged as a means of measuring corporate value and providing information for investment decisions. However, the standards set by different rating agencies vary, leading to discrepancies in ESG ratings. Confucian culture, as an informal institution, may indirectly influence these rating discrepancies by shaping corporate behavior. Therefore, this paper takes traditional culture as the starting point to explore the intrinsic relationship between Confucian culture and corporate ESG rating divergence, with the aim of providing empirical support for improving China’s ESG rating system. This study focuses on non-financial listed companies in the Shanghai and Shenzhen A-shares from 2010 to 2022, analyzing the relationship between the extent of Confucian cultural influence on companies and ESG rating divergence. The research findings indicate the following: (1) There is a positive correlation between Confucian culture and corporate ESG rating divergence. (2) The impact of Confucian culture on ESG rating divergence is significantly greater in state-owned enterprises (SOEs) than in non-state-owned enterprises. (3) This influence is more pronounced in highly polluting industries compared to non-highly polluting industries. (4) The effect is more significant in companies with older CEOs than younger CEOs. (5) This influence is more evident in companies required to disclose social responsibility information compared to those that do so voluntarily. After conducting a series of robustness checks, the conclusions of the paper remain robust.

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