Following the Green Leader: Peer Effects and Strategic Convergence in ESG Ratings

Purpose – This study investigates how firms adjust ESG ratings in response to peer firm ESG strategies. It aims to uncover whether such convergence reflects strategic imitation under institutional pressures. We examine which ESG components are more susceptible to peer influence. The goal is to understand ESG as a relational, not solely internal, strategic outcome. Design/Methodology/Approach – We use a panel dataset of listed firms with detailed ESG and financial data from WIND and CSMAR. Regression models test peer effects across ESG components with analyst coverage as a moderator. Control variables include firm size, leverage, ROE, and ownership type. Industry fixed effects and robustness checks validate the empirical design. Findings – Firms tend to align ESG ratings with peers, especially in the Social and Environmental dimensions. Peer effects intensify under higher analyst coverage, suggesting a signaling mechanism. Governance ratings show minimal peer convergence, highlighting ESG’s multidimensionality. No strong evidence supports ESG rigidity from convergence. Research Implications – This study highlights the strategic, observable nature of ESG behavior within peer ecosystems. It cautions investors and regulators against interpreting ESG scores as purely intrinsic signals. Our findings support a network-based perspective on sustainability reporting and legitimacy. Future research should explore ESG mimicry dynamics across institutional contexts.