Navigating ESG complexity: Impact of information sources on analyst forecast accuracy

This study investigates the impact of environmental, social, and governance (ESG) information from diverse external sources on analyst forecast accuracy. Drawing on four different proxies that capture firms’ ESG information environments—including data from the media, third-party ESG rating agencies, ESG-focused investors, and government reports—we find that ESG information disseminated by the media and ESG rating agencies has the most significant and consistent effect in reducing both short- and long-term analyst forecast errors. Furthermore, while a greater volume of ESG information generally enhances forecast accuracy, higher divergence across sources diminishes this benefit. Overall, our findings underscore the complex role of non-financial ESG information in shaping analysts’ earnings forecasts and highlight the challenges posed by heterogeneous ESG signals for informed investment decision-making.