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We examine the relationship between digital finance and ESG divergence over 2011–2022 in China. Our findings
indicate that higher digital finance levels are associated with increased ESG divergence. This finding remains
robust after a series of endogeneity and robustness checks, including two-stage least squares, propensity score
matching, alternative measures of digital finance and ESG divergence. The mechanism analysis provides suggestive
evidence that heightened market attention, especially ESG-controversy-related attention, and reduced
information transparency may be associated with the positive relationship between digital finance and ESG
rating divergence by increasing information overload and making ESG-related information harder for rating
agencies to interpret consistently. The relation is more pronounced in SOEs, firms with higher institutional
ownership, weaker financial supervision, and operating in less-polluted industries. These insights underscore the
need for regulatory frameworks that promote better ESG reporting, enabling investors to navigate rating discrepancies
in an increasingly digital financial landscape.
