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Pretending to be sustainable: Is ESG disparity a symptom?

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  • de la Fuente, Gabriel
  • Velasco, Pilar

Abstract

This study investigates a novel dimension of ESG (environmental, social, and governance), namely the degree of inequality in the distribution of a firm’s overall ESG performance across the three pillars. By grounding our arguments on the agency theory, we argue that such a dimension can discern the degree of authenticity of managers’ ESG awareness. A more unequal distribution might be due to a discretionary and self-interested adoption of ESG principles in order to win the favour of key stakeholders. Using a sample of U.S. listed companies, we provide empirical evidence that disparity in ESG scores between pillars detracts value from ESG engagement. Moreover, such a negative moderating effect worsens in companies that are more prone to agency problems (e.g. higher cash holdings), lack ESG-based compensation, have lower leverage, and are more exposed to the investor spotlight (e.g. higher analyst coverage). Overall, our findings suggest the importance of accounting for managerial motivations to engage in ESG and support the idea that a lower perceived authenticity of these programmes results in lower value outcomes.

Suggested Citation

  • de la Fuente, Gabriel & Velasco, Pilar, 2024. "Pretending to be sustainable: Is ESG disparity a symptom?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 20(2).
    • Handle: RePEc:eee:jocaae:v:20:y:2024:i:2:s1815566924000183
    DOI: 10.1016/j.jcae.2024.100418
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    More about this item

    Keywords

    ESG; Corporate social responsibility; Firm value; Agency theory; Disparity;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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