ESG Ratings Disagreement and Trading Behaviour

Given the scale of ESG ratings disagreement, we examine its impact on trading behaviour and find that a one standard deviation increase in disagreement leads to a 1.3% decline in abnormal trading volume, suggesting ESG disagreement introduces uncertainty rather than belief divergence. This effect holds across various robustness tests and is stronger for firms with low ESG performance, limited analyst coverage, or high volatility. The relationship becomes more pronounced after 2016 and is driven by norm-constrained institutional investors. Disagreement is also associated with wider bid-ask spreads, indicating reduced information efficiency.