This paper examines whether delays in ESG score updates generate pricing anomalies in equity markets. Using detailed data from MSCI, which discloses ESG-related raw indicators continuously but updates final ESG scores annually, we exploit the temporal disconnect between information release and rating revision. We develop a LASSO-based model to predict future ESG score changes from raw ESG data and document that these signals contain material information prior to official rating updates. A timing strategy based on predicted upgrades and downgrades delivers a statistically significant monthly alpha of 0.13%. We show that a subset of US active funds anticipates rating changes and trades accordingly in the segment of large-cap. Large-cap stocks exhibit rapid information incorporation due to the presence of these informed arbitrageurs. Our findings highlight the role of ESG-aware investors in facilitating price discovery and reveal a persistent ESG-related mispricing in
small-cap equities.
