Democratizing corporate governance: How retail investors’ ESG attention reduces ESG-washing

An important debate exists regarding whether retail investors can play the role of external monitors in corporate governance, and if so, why. We contribute to this debate by using data from Investor-Firm Interactive Platforms in China to explore the impact of retail investors on ESG-washing. Specifically, we employ the BERT model to identify ESG-related inquiries on these platforms, defining them as retail investors' attention to ESG (ESGRIA). We find that ESGRIA significantly reduces ESG-washing. Results remain robust across alternative measures, samples, and identification strategies. Mechanism tests support two channels: (i) an ESG information asymmetry channel, in which ESGRIA's disciplining effect on ESG-washing is stronger when information asymmetry is high; and (ii) a managerial interactive learning channel, in which the effect of ESGRIA is more pronounced in firms with higher managerial short-termism. Furthermore, the effect of ESGRIA on ESG-washing is more pronounced in firms with higher-quality investor–company interactions, weaker internal governance, higher institutional ownership, and lower environmental attention from local governments. Finally, we find that ESGRIA enhances corporate green innovation. Overall, our study demonstrates that technological advancement democratizes corporate governance by empowering minority shareholders, providing novel insights into addressing ESG-washing.