The Effect of ESG Controversies on the Sustainable Investment

To investigate the link between ESG controversies and corporate investment efficiency, we use a newly introduced ESG Controversy Score database. Our sample includes 3,182 observations across 1,155 US companies from 2012 to 2022. Unlike previous methods that depend on self-reported data prone to “greenwashing,” our approach provides a more objective view. Our findings indicate that ESG controversies significantly decrease investment efficiency, especially noticeable in investment underperformance. This negative impact is particularly pronounced in larger firms with more analysts. This study highlights the significant effect of ESG misconduct on corporate sustainability and offers a clear assessment of its influence on investment efficiency.