When and Why Do Organizations Respond to Environmental, Social, and Governance Issues?

Abstract

Firms face growing pressures from multiple stakeholders on a variety of environmental, social, and governance (ESG) issues. When do they respond, and why? We use media criticisms to identify a number of ESG issues that organizations face simultaneously – this allows us to model their interdependencies. We hypothesize that the risk of peer contamination and the need for reputational cleansing motivate organizations to respond to a focal issue to a greater extent, and that in conjunction with issue advantageousness and media gravity, both mechanisms produce even stronger effects on organizational action. Importantly, given that firms are criticized both in traditional and social media, our primary data, collected by RepRisk daily by screening over 80,000 sources globally in 15 languages, captures multiple stakeholders and media sources. This large and unique dataset involving 3,037 firms and 20 ESG issues between 2007 and 2016 allows us to produce two sets of results – panel data and matching analyses – generating a more nuanced understanding of the mechanisms underpinning the organizational decision-making process for responding to ESG issues. We contribute to the social evaluation literature, the attention-based view of the firm, the nonmarket strategy area, and research on the limits of media effects on organizational decision-making.