ESG Disclosure, Rating Divergence and Greenwashing: A Critical Review and Integrative Research Agenda
DOI:
https://doi.org/10.51325/9qr3c075Keywords:
ESG Disclosure, ESG Ratings, Rating Divergence, Greenwashing, Sustainability Reporting, Legitimacy Theory.Abstract
Environmental, social and governance (ESG) information has become central to investment, lending and regulatory decisions, yet its credibility remains contested. This review synthesises research on three closely connected phenomena: corporate ESG disclosure, third-party ESG ratings and greenwashing. Using an integrative narrative review of peer-reviewed studies, standard-setter publications and regulatory texts, the paper examines how legitimacy, voluntary disclosure, signalling, stakeholder, institutional and agency theories explain why firms disclose ESG information, why disclosure quality varies and why selective or misleading claims persist. The review shows that sustainability reporting is now almost universal among the largest companies, but that the ratings built on these disclosures diverge markedly, with correlations between major providers ranging from 0.38 to 0.71, compared with near-perfect agreement among credit ratings. Differences in measurement, rather than in weighting, explain most of this divergence, and more disclosure can widen rather than narrow disagreement. These conditions create room for greenwashing at both firm and fund level, which regulators in the European Union, the United States and elsewhere have begun to address through mandatory reporting standards, supervision of rating providers, anti-greenwashing rules and enforcement. The paper proposes an integrative Disclosure, Rating and Greenwashing (DRG) framework, derives five propositions and sets out a future research agenda. It identifies gaps concerning emerging markets, the effects of the regulatory wave of 2023 to 2026, artificial intelligence-based detection and the social and governance pillars, which remain under-studied relative to climate. Implications are offered for managers, investors, rating providers and policymakers.
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