The Mitigating Role of Managerial Ability in ESG Decoupling

ABSTRACT Does managerial competence widen or bridge the gap between environmental, social, and governance (ESG) disclosures and actual performance? This paper explores the relationship between CEO ability and corporate decoupling regarding sustainability issues. Despite the risk that capable managers might exploit decoupling to manipulate perceptions, our analysis suggests that managerial ability fosters authentic commitment. To test our hypothesis, we used a sample of 8224 firms worldwide from 2014 to 2023 and estimated ordinary least squares regression models, applying Tobit and generalized method of moments (GMM) to ensure consistency and stability of the estimators against potential distribution biases and causality concerns. Our findings indicate that managerial ability bridges the gap between ESG disclosures and actual performance and ultimately reduces ESG decoupling. This enriches the environmental literature by highlighting the effective role of CEO ability in reducing ESG decoupling, thereby curbing greenwashing and greenhushing. While these findings can be generalized across most settings, the mitigating effect is less pronounced in Oceania and among companies in the industrials, consumer cyclicals, and real estate sectors. Thus, this study advances literature in several key dimensions: we theoretically develop the mechanism through which managerial competence influences ESG reporting integrity within multicultural environments; and we provide empirical support for upper echelons theory, demonstrating that higher executive capability acts as an important factor in reducing irresponsible behaviors.