Same Firms, Different Verdicts: ESG Rating Choice and the Measurement of Greenwashing

Abstract

This paper investigates the Aggregate Confusion hypothesis (Berg, Kolbel, and Rigobon, 2022) at the firm level by measuring the Disclosure-Performance Gap (DPG), the standardised divergence between a firm's voluntary environmental disclosure ("Talk") and its realised emissions performance ("Walk"). The sample comprises 200 large European firms from the Energy, Materials, Industrials, and Utilities sectors of the STOXX Europe 600 in fiscal year 2023, the final cross-section of the voluntary reporting era before the Corporate Sustainability Reporting Directive. The model is selected through a six-stage process, candidate assembly, correlation screening, VIF based multicollinearity filtering, stepwise forward search under the corrected Akaike Information Criterion, Cook's distance screening, and HC3 re-estimation across 421 candidate specifications, estimated by ordinary least squares with HC3 robust standard errors on the full sample. Flagship index membership is the strongest predictor of a wider gap ($\beta$ = +0.78, p < 0.01), consistent with institutional ceremonial conformity. TCFD endorsement is also positive ($\beta$ = +0.86, p < 0.05) but identified off a small group of non-supporting firms, so it is read as directional, not a precise magnitude. Renewable energy use ($\beta$ = -0.31, p < 0.01) and environmental capital expenditure ($\beta$ = -0.22, p < 0.05) significantly narrow the gap, consistent with signalling theory, while governance and monitoring variables carry no explanatory power. Results are robust to influence trimming, rank-based recoding of the disclosure score, and removal of the TCFD variable. Replacing the CDP Climate Score with the LSEG Environmental Pillar Score eliminates the index-membership effect while the renewable-energy effect survives, showing that detected greenwashing is conditional on the rating lens applied.