Participation and Compliance in Sustainability Agreements: Alleviating Suspicion Through Symbolic and Substantive Signaling for Investors

ABSTRACT Firms are relying increasingly on sustainability agreements to signal their commitment to investors, but such signals elicit inconsistent reactions. Collective agreements make membership observable but firm‐level implementation invisible. Prior work has left the question of what investors use to separate substantive commitment from low‐effort conformity unanswered. Drawing on signaling theory, we propose that investor reactions depend not simply on whether firms participate in sustainability agreements but on how they evaluate the credibility of such participation through observed compliance. Across four online investor experiments, we show that continued participation decreases investor suspicion and in turn, increases willingness to invest only when firms have been compliant. The penalty for withdrawing firms is not fixed: Communication of the adoption of an independent sustainability management tool mitigates negative reactions only when prior compliance exists. The findings underscore the importance of verified compliance as a driver of credible signaling, with suspicion as a psychological process.