Command-and-control environmental regulation and ESG rating disagreement:evidence from low-carbon city pilot policy in China

This paper investigates the impact of command-and-control environmental regulation on the ESG rating disagreement. Using China’s low-carbon city pilot policy as a quasi-natural experiment, we find that the policy significantly reduces ESG rating disagreement, with pilot firms experiencing a 4.15% greater decline in disagreement compared to non-pilot firms after policy implementation. The reduction is driven by improved environmental information disclosure quality and enhanced environmental performance. The effect is more pronounced among firms with low green investor ownership and those not held by ESG-themed funds. Moreover, the policy’s impact exhibits significant heterogeneity across firm characteristics, ESG performance levels, and the source of rating disagreement. Specifically, the reduction in ESG rating disagreement is more substantial among firms with lower ESG performance, those rated by domestic agencies, small size firms, non-heavy pollution firms and non-SOE enterprises. Overall, command-and-control environmental regulation is effective in reducing ESG rating disagreement, offering valuable implications for improving the consistency and credibility of ESG information.