Unveiling the Impact of ESG rating divergence on corporate carbon performance: the mediating role of green innovation

Environmental, Social, and Governance (ESG) investing has emerged as a critical trend in global financial markets. However, the persistent disparity in ESG ratings undermines their reliability and utility, posing challenges for stakeholders in assessing corporate sustainability. To validate how ESG rating divergence meaningfully impact on aggregate outcomes. To answer this question, present study investigates the impact of ESG rating divergence on corporate carbon performance, emphasizing the mediating role of corporate green innovation. Using Chinese A-share listed firms, the findings reveal that ESG rating divergence significantly reduces corporate carbon performance. The study identifies a novel mechanism where ESG rating divergence hampers green innovation, which subsequently weakens corporate carbon performance. Robustness checks using instrumental variables, and alternative measures confirm the reliability of the findings. Notably, the adverse impact of ESG rating divergence intensified after the COVID-19 pandemic, reflecting the evolving dynamics of corporate sustainability challenges. This study is among the first to explore the intricate relationship between ESG rating divergence, green innovation, and carbon performance in the context of a major emerging economy. The findings underscore the urgent need for standardized ESG disclosure practices and harmonized rating methodologies to minimize divergence and enhance transparency. Policymakers, regulators, and investors are urged to address these issues to foster innovation, meet stakeholder expectations, and support the global transition to a low-carbon economy, ensuring sustainable corporate growth.