ESG score, ESG controversies, Greenwashing, and Profitability
DOI:
https://doi.org/10.5890/JEAM.2026.09.007Abstract
This study investigates links among ESG scores, controversies, greenwashing, and profitability using panel data from 80 Fortune Global 500 firms (2014--2022). A Greenwashing Index---defined as the gap between ESG and controversies scores---captures deceptive practices using available ratings. Regression, Hausman, and Granger causality tests show ESG scores and the Greenwashing Index positively affect ROA and EQ, while controversies have negative effects; ESG becomes insignificant in combined models, with causality running from ESG factors to profitability. Paradoxical findings reflect low-cost greenwashing boosting ESG scores, freeing resources for profit-enhancing activities that may trigger controversies yet increase efficiency. This framework reconciles stakeholder and shareholder theories by showing firms pursue profit while maintaining ESG appearances. Policy implications include mandatory third-party ESG audits, subsidies for genuine practices, and incorporating controversies and greenwashing into investment decisions. Limitations involve geographic concentration (U.S./China), small sample size, reliance on a single data provider (Refinitiv), relative cost measures, omission of leverage/market metrics, and theoretical rather than empirical cost assessments. Future studies should expand samples, data sources, variables, and collect primary ESG expenditure data.References
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