Aligning empirical evidence on ESG with ancient conservative traditions

Abstract

Environmental, social, and governance (ESG) issues have attracted increasing attention worldwide. However, there is a concomitant growing concern regarding the motivation behind firms' ESG practices. This has even become a hotly debated issue among politicians. To provide empirical evidence of academic neutrality, we use a virtue ethics lens to investigate how informal institutions, specifically Confucian virtues, which are widespread, centuries-old, conservative traditions in China and many Ascian countries, affect corporate ESG activities. We reason that Confucian virtues provide guidelines and motivation for developing better ethical leadership. Our results indicate that companies located in places with stronger Confucianism have better ESG performance, consistent with ESG engagement resonating with Confucian emphasis on the public good. Additionally, our identified virtue and ethics effects are more pronounced for non-state-owned enterprises (consistent with ESG being more associated with firms distanced from the public sector) and for firms located in places with less developed formal institutional environments (consistent with cultural factors and informal institutions substituting for formal institutions).