ESG RATING DISAGREEMENT, GREENWASHING PERCEPTION, AND INSTITUTIONAL INVESTMENT DECISIONS:THE MODERATING ROLE OF DISCLOSURE QUALITY AND THIRD-PARTY ASSURANCE

Roshan S;

HIGHLIGHT

Using a structured survey of 450 institutional investors across Europe, North America, and Asia-Pacific, the proposed methodology employs Partial Least Squares Structural Equation Modeling (PLS-SEM) to test seven hypotheses across direct, mediating, and moderating pathways.

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ABSTRACT

The divergence of Environmental, Social, and Governance (ESG) ratings across major providers has created an unprecedented information challenge for institutional investors. Drawing on signaling theory, information asymmetry theory, and legitimacy theory, this study develops and proposes testing an integrated model examining how ESG rating disagreement influences institutional investment decisions through the dual mediating mechanisms of greenwashing perception and investor trust in ESG information. We further theorize that ESG disclosure quality and third-party assurance moderate these relationships by attenuating the uncertainty associated with rating divergence. Using a structured survey of 450 institutional investors across Europe, North America, and Asia-Pacific, the proposed methodology employs Partial Least Squares Structural Equation Modeling (PLS-SEM) to test seven hypotheses across direct, mediating, and moderating pathways. Grounded in the empirical observation that pairwise correlations across six major ESG rating providers average only 0.56—leaving nearly 70% of the variance unexplained—this study addresses a critical gap in understanding how rating disagreement propagates through investor cognition to shape capital allocation decisions. The paper contributes to the ESG literature by (1) providing the first integrated model linking rating disagreement to investment decisions through cognitive intermediaries, (2) identifying boundary conditions under which disclosure quality and assurance mitigate the adverse effects of rating confusion, and (3) offering actionable implications for regulators, rating agencies, and corporate sustainability practitioners seeking to restore investor confidence in ESG information.

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