Substance over form: A carbon performance examination on corporate ESG practices

Against the backdrop of global warming, businesses have emerged as key players in improving resource efficiency and combating pollution. Clarifying the intrinsic link between corporate ESG practices and carbon performance is of great significance. Using data from Chinese A-share listed enterprises from 2009 to 2021, this study empirically examines the specific impact and mechanisms through which corporate ESG practices affect carbon performance. The findings indicate that corporate ESG practices can actually undermine carbon performance, challenging the perception that such practices are substantive rather than superficial. This negative effect is attributed to internal agency conflicts and the resulting phenomenon of “greenwashing”. Moreover, this negative relationship is more pronounced in heavily polluting companies, non-SOE enterprises, and companies with high ESG rating discrepancies. Further analysis reveals that greenwashing is more prevalent among Category B and C enterprises, with Category B showing the most pronounced tendency. Additionally, certain enterprises exhibit greenwashing behaviors across the E, S, and G dimensions, facilitated by earnings management and inefficient investments. On the other hand, internal controls and oversight by institutional investors serve as key governance mechanisms that mitigate the adverse effects of greenwashing. The theoretical contribution of this study lies in revealing the unintended negative consequences of ESG ratings and the motivations and methods behind corporate“greenwashing.”Practically, it offers insights for policymakers to strengthen environmental regulations and guide businesses toward pollution control, carbon reduction, and sustainable development.