Greenwashing, Carbon Emission, and ESG

Recent decades have seen an increasingly awareness of climate changes, putting a pressure on companies to do more to deal with carbon emission. One of the popular measures used in assessing how well a company commits to sustainable development and reduces carbon emissions is ESG ratings. Given the importance of both ESG ratings and carbon footprints on our society and the target of net zero by 2050, we explore the relation between carbon emission and the Refinitiv ESG scores for the US sample from 2005 to 2018. Our findings indicate that high ESG-rated or environment-rated firms do not have lower carbon emissions. It appears that these firms are not incentivized to do more for environment, as they have already been awarded with good publicity for being environmentally friendly. Finally, our findings also support the ‘cheap talk’ concept, greenwashing hypothesis and legitimacy theory. Companies are not genuinely committed to climate action.