With the widespread use of ESG in investment and company evaluation, ESG rating has become an indispensable factor in the capital market. However, due to the emergence of different ESG rating agencies and the diversification of ESG standards, there is significant divergence in ESG ratings among different agencies. This not only raises doubts about the trust and effectiveness of ESG ratings, but also makes it difficult to make investment decision based on ESG ratings.

This paper takes A-share listed companies in 2011-2021 as the sample, and empirically examines the impact of ESG rating divergence on stock price synchronicity. The results show that ESG rating divergence amplifies the co-movement of stock prices, mainly due to different ratings hindering the effective pricing of ESG information in the market. Further analysis shows that good performance in ESG, high quality of information disclosure, and strong environmental regulations can weaken the impact of ESG rating divergence on stock price synchronicity. Mechanism testing suggests that institution ownership and individual investors’ comments in the social media are the two important mechanisms of how ESG rating divergence affects stock price synchronicity. It is also found that the differences between local and overseas ESG rating agencies, as well as the differences between local ESG rating agencies, significantly enhance stock price synchronicity. In addition, compared to S (society) and G (governance) indicators, the divergence of E (environment) indicators more significantly enhances stock price synchronicity.

This paper contributes to the literature in the following ways: First, it starts from the perspective of capital market pricing efficiency and finds that ESG rating divergence can amplify stock price synchronicity, which is a supplement and development to the existing literature. Second, in the era of widespread attention to sustainable development and ESG investment, it includes ESG rating agencies, an emerging information intermediary, into the research of stock price synchronicity. Third, it demonstrates the necessity of adopting an ESG evaluation system that is in line with international standards and takes into account local factors for ESG investment in the capital market. There is a synergy between building a more effective capital market, promoting sustainable economic development, and ESG investment, which requires joint efforts from regulatory entities, listed companies, and investors.