Does the Imbalance of ESG Activities Affect Company Performance? -- Evidence from Chinese A-share Listed Companies from 2018-2022

Abstract

In recent years, the concept of sustainable development has progressively gained traction among the populace, with the performance of enterprises in environmental, social, and corporate governance (ESG) aspects attracting widespread attention from various sectors of society. The weighting of E, S, and G components varies across domestic and international ESG rating agencies, often resulting in significantly divergent weighted ESG scores. Leveraging the theory of organizational ambidexterity, this paper empirically investigates the impact of discrepancies between institutional ESG scores and equally weighted ESG scores on company performance, utilizing a sample of Chinese A-share listed companies spanning the years 2018 to 2022. Our findings reveal that equally weighted ESG scores exhibit a correlation with company performance, and a higher positive percentage difference between a company's rating agency ESG scores and its equally weighted ESG scores is associated with lower performance. This suggests that the rating agency weighting method may inadvertently encourage companies to engage in "greenwashing." This conclusion remains consistent after conducting robustness tests. Heterogeneity analysis further indicates that the negative impact of this difference on company performance is more pronounced among non-state-owned companies, manufacturing companies, and small companies. The mechanism of action test reveals that this difference negatively affects company performance by exacerbating financing constraints and reducing operating efficiency.