ESG Controversies in Global Firms: A Black Mark?

ABSTRACT Despite increasing attention paid by companies to sustainability, there is still evidence of environmental, social and governance (commonly referred to as ESG) scandals. As research on this topic is scant, this paper aims to analyse the impact of ESG controversies on firms' sustainability practices, that is, ESG policies, as well as environmental management, communication and supply chain management actions. A heterogeneous sample of 1791 observations, comprising companies from various countries and sectors, is analysed using panel regressions over a 4‐year period. Overall, our results seem to imply a rather weak or null effect of ESG controversy presence on firms' sustainability practices uptake decisions with no direct causality effect. In particular, firms do not appear to be deterred by negative ESG events when deciding whether to adopt ESG practices. Instead, we suggest that a range of external (e.g., market, stakeholder and political pressures) and internal factors (e.g., firm‐level characteristics) jointly shape firms' ESG practice decisions. This work contributes to academic and practitioner knowledge as it resonates with companies' sustainability practices backsliding and approaches in order to make companies more responsible for their conduct.