Abstract/Summary

This thesis investigates the environmental, social, and governance (ESG) commitments made by companies and their actions. By surveying some of the most recently developed practices that companies have adopted to legitimise their ESG orientation, I critically evaluate the efficacy of these practices in shaping organisational behaviours in the realm of ESG throughout the three chapters of this thesis. At first, I investigate the impact of signing the Business Roundtable Statement (BRS) on firms' subsequent ESG performance. My analysis reveals that firms signing the BRS exhibit a decline in ESG performance. Through the lens of the Prospective Moral Licensing framework, I interpret that signatory CEOs enhance their self-image by merely anticipating future moral actions, thereby diminishing their actual engagement in committed moral behaviours. I also complement my results with explorations of the boundary conditions under which the moral licensing effect is most pronounced. Next, I examine the effectiveness of ESG-linked executive compensation in mitigating engagement in ESG Controversies. While I find that ESG-linked compensation is not generally effective in decreasing occurrences of ESG Controversies, this link is particularly strong for firms run by powerful CEOs. Taken together, my findings are in line with managerial power arguments that opportunistic CEOs may use ESG-linked compensation targets to extract higher benefits by symbolically improving their self-reported ESG performance without substantially addressing negative ESG outcomes. Finally, I assess how effective sustainability-linked loans (SLLs) are in promoting meaningful improvements in borrowers’ ESG performance. Consistent with “sustainability washing” concerns, I find that SLL borrowers in general do not improve borrowers’ ESG profiles. However, I find that the effectiveness of sustainability-linked loans is enhanced when there is a higher proportion of lead lenders with ESG-linked executive compensation in a loan syndicate. I attribute these findings to the need for stronger incentives for lenders to draft meaningful SLL contracts.