When ESG Falls Short: Institutional Constraints and Market Responses

This study investigates English instructors’ perspectives on integrating artificial hisstudy investigates how ESG performance influences key dimensions of financialmarket behavior—systematic risk (beta), cost of capital (WACC), and analystforecast dispersion (SD_TPE)—by applying a two-stage least squares (2SLS)regression model to a global dataset of over 30,000 firm-year observations (2018–2023). We argue that ESG functions as a financial signal, but its interpretationvaries across market actors and institutional contexts. Our findings reveal thathigher ESG performance is consistently associated with lower market risk and areduced cost of capital, confirming its role in enhancing financial stability. However,ESG also increases analyst forecast dispersion, suggesting that sustainabilityinformation may generate interpretive uncertainty. Disaggregated analysis showsthat all ESG pillars (E, S, and G) contribute to risk mitigation, yet simultaneouslyincrease informational noise. Regionally, favorable effects are concentrated inEurope and Oceania, whereas in Asia, Africa, and the Americas, market responsesare weaker or inconsistent. These results highlight the conditional value of ESG andunderscore the importance of disclosure quality and institutional credibility. Thestudy offers novel insights into the financial consequences of ESG and informsongoing debates in sustainable finance and corporate accountability.