We investigate the relationship between ESG rating divergence and stock returns from an investor’s perspective, to explore the impact of inconsistency among ESG rating agencies on the capital market. We construct ESG rating divergence data using ratings from three prominent ESG rating agencies in China. Our study is based on 54,679 company-quarter observations from 2018 to 2022, which covers 4,377 Chinese listed companies. Our findings demonstrate a significant negative impact of ESG rating divergence on stock returns, which we validate through a series of robustness tests and endogenous analyses. Notably, we find that investors’ expectations mediate the relationship between ESG rating divergence and stock returns. Further analyses show that only the divergence in social ratings have a significant inhibitory effect on stock returns. In addition, ESG rating divergence significantly impedes subsequent average ESG ratings. The adverse relationship between ESG rating divergence and stock returns is particularly pronounced in non-heavy pollution companies, non-state-owned companies, and companies with lower external attention.