Undesired corporate sustainability practices under imperfect ESG rating scheme

Purpose This study examines the undesired impacts of one of China's ESG (Environmental, Social, and Governance) rating schemes on corporate sustainability practices in China. We draw on stakeholder salience theory and impression management theory to investigate how Chinese firms navigate ESG demands. Design/methodology/approach Using data from Chinese listed firms between 2011 and 2019, the study applies the 2015 enactment of China's New Environmental Protection Law as an exogenous shock to examine the investor and public concern about ESG ratings on firms' sustainability strategies. Findings The study finds that Chinese firms often prioritize symbolic sustainability initiatives over substantive environmental actions to enhance their ESG scores. This behavior is further exacerbated by the Chinese institutional context, where low social trust and high corruption fuel managerial opportunism and greenwashing. Originality/value Our findings highlight the need to strengthen environmental regulation, establish robust ESG rating schemes, and improve social oversight mechanisms to ensure that corporate practices contribute to environmental and social goals, rather than simply being used for image management.