Heterogeneous ESG Disclosure and Risk Diversification in Cross-Industry Portfolios: A Review

Main Article Content

Xiang Li
Wuhan University of Technology, Wuhan, China

DOI: https://doi.org/10.70267/icrafm.202617437443

Keywords

ESG disclosure, comparability, cross-industry portfolios, diversification, rating disagreement

Abstract

Environmental, Social, and Governance (ESG) information is increasingly used to evaluate long-horizon risks and to construct cross-industry portfolios. Yet the usefulness of that information depends not only on whether firms disclose, but also on whether disclosures are comparable across industries, firms, and data providers. This review synthesizes research on disclosure regulation, ESG rating disagreement, asset pricing, and portfolio choice to examine how heterogeneous ESG disclosure may alter diversification. The literature supports two conclusions that must be held together. First, common disclosure requirements can improve firms' information environments, market liquidity, and investors' ability to compare exposures. Second, a fully uniform score can obscure industry-specific materiality because environmental, social, and governance risks do not affect every business model in the same way. When scope, measurement, and weighting choices differ without transparent reconciliation, rating disagreement becomes an additional layer of estimation uncertainty. Portfolio managers may then misclassify exposures, underestimate common risk drivers, and obtain less diversification than historical covariance estimates suggest. The review therefore favors a tiered regulatory design: a mandatory cross-industry core of comparable metrics, supplemented by industry-specific material disclosures and transparent methodological bridges. Direct causal evidence at the portfolio level remains limited, so future research should connect disclosure heterogeneity to covariance estimation error, out-of-sample portfolio risk, and stress-period performance.

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Published
Oct 19, 2026
Conference Proceedings Volume
Vol. 17 (2026): Proceedings of the International Conference on Research in Accounting, Finance and Management (ICRAFM 2026)
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How to Cite

Li, Xiang. “Heterogeneous ESG Disclosure and Risk Diversification in Cross-Industry Portfolios: A Review”. Exploring Science Academic Conference Series, vol. 17, Oct. 2026, pp. 437-43, https://doi.org/10.70267/icrafm.202617437443.