Collaboration or compliance? Unpacking ESG performance and carbon penalties

• This research comprehensively examines corporate ESG performance by analysing the interplay between carbon emissions, EPA fines, and government collaboration, providing insights into corporate sustainability practices and regulatory compliance. • Key findings reveal that companies with active government partnerships achieve higher environmental scores and lower regulatory penalties, while significant indirect (Scope 3) emissions continue to challenge effective sustainability management. • Although total carbon emissions declined from 2017 to 2021, the analysis reveals an upward trend in emissions and EPA fines, underscoring the need for robust sustainable practices and targeted policy interventions. This study addresses a key research gap by investigating how collaboration with government agencies influences ESG (Environmental, Social, and Governance) performance and carbon penalty outcomes among Fortune 500 firms, using machine learning techniques. Applying logistic regression and decision tree models to data from 2017 to 2021, we find that Scope 3 emissions dominate corporate carbon footprints and that active government collaboration is associated with fewer EPA fines and higher environmental scores. The machine learning approach allows for capturing complex, non-linear interactions that traditional statistical methods might miss. Policy implications suggest that regulators should design targeted collaboration programmes to improve environmental compliance, while firms should enhance supply chain management to address indirect emissions risks.