Why Do E-Ratings Diverge? Heterogeneous Investor Beliefs and the Demand for Environmental Performance Information

The research programme investigates the demand-side drivers of divergence in environmental ratings across information providers. It examines how investors’ heterogeneous beliefs about future climate scenarios shape the demand for information on firms’ environmental performance. Divergence in ratings can be interpreted as an endogenous response by information providers to the heterogeneous informational needs of the investor base. The project develops a theoretical framework based on a dynamic portfolio choice problem under ambiguity about long-term climate scenarios, which affect the returns of an unobserved risky asset. It implements an empirical approach by constructing a novel climate ambiguity index based on social media posts by mainstream media outlets that will work as a proxy of public sentiment and widespread perception of climate issues. The project aims to shed light on the determinants of divergence in environmental ratings beyond supply-side explanations.