Authors: J Xu, M Liu, HXH Bao
Year: 2026
Journal / publisher: Business Strategy and the Environment
DOI: 10.1002/bse.70759
Abstract
Amid growing global attention to environmental, social and governance (ESG), this study examines the misalignment between ESG disclosures and actual practices—termed ‘lip service’—using data from Chinese firms from 2006 to 2022, constructing an index to quantify it. The findings indicate that such behaviour is more common in high- emission and capital- dependent industries, significantly undermining firm value. External oversight mechanisms (media, analysts and institutional investors) and CEO compensation incentives help mitigate its impact, whereas traditional governance tools, such as managerial ownership and CEO duality, are largely ineffective. The severity of this behaviour is influenced by pollution levels, ownership structure, business risk and the tone of annual reports. Further analysis reveals that ‘lip service’ also weakens financial performance, including earnings per share and corporate reputation. These findings highlight the economic risks of ESG inconsistencies and underscore the need for stronger regulatory enforcement and active stakeholder supervision to promote genuine ESG engagement. 1 | Introduction (SRI), ESG now covers environmental, social and corporate governance. Since 2006, the Shenzhen Stock Exchange (SZSE) The greenhouse effect, extreme weather and pollution from fos- and Shanghai Stock Exchange (SSE) have required listed comsil fuels driven by climate change are increasingly threatening panies to publish CSR reports alongside their annual reports. the global economy (Nordhaus 2019). In response, international Over 16 years, from 2006 to 2022, the number of A- share comstandards such as the United Nations Principles for Responsible panies issuing corporate social responsibility reports increased Investment (UNPRI), Global Reporting Initiative (GRI) and from 19 to 1535.1 These efforts align China with international Sustainability Accounting Standards Board (SASB) have been sustainability standards while enhancing transparency in CSR established. Governments and regulators have also strengthened and capital markets. environmental, social and governance (ESG) disclosure requirements to promote sustainable development. For example, the However, challenges persist in ESG reporting. Differences in European Union’s Sustainable Finance Disclosure Regulation regional standards and a lack of consistent quantitative indica(SFDR), enacted in 2021, mandates that financial market par- tors make it difficult for companies to disclose ESG information ticipants and advisers disclose their ESG policies and perfor- uniformly. Discrepancies in ESG ratings from different agencies mance, thereby enhancing transparency in sustainable finance. further complicate investors’ ability to assess corporate sustainIn recent years, China has made significant progress in develop- ability (Avramov et al. 2022). Low- quality ESG disclosures are ing its ESG disclosure framework, driven by the ‘dual- carbon’ also associated with higher default risk (Li et al. 2022) and ingoals and capital market reforms. As an extension of corporate efficient capital allocation. Additionally, the ESG data of many social responsibility (CSR) and socially responsible investment firms are not independently audited, raising concerns about the This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.