What is ESG Controversies?

Institutional investors and financial institutions increasingly focus on ESG criteria related to business performance in environmental and social issues and corporate governance [1,4,8]. ESG factors can help stakeholders understand a company’s performance and compare it with its competitors while evaluating its reliability and viability before investing or funding it [7,8]. That means that disclosing companies’ performance in terms of ESGs enhances transparency in their sustainability practices and helps investors and financial institutions make better decisions. However, investors want access to the reported as well as unrecorded information, which may reveal ESG controversies [1]. Nevertheless, what are ESG controversies? The term is related to harmful practices that businesses may be a part of and the media’s spread of negative ESG information about companies, such as their involvement in scandals. This results in companies experiencing negative news coverage, leading to losses such as a decrease in their market share. Moreover, the participation of companies in illegal practices can affect their financial performance and damage their reputation, which leads to minimizing their market value and increases their market risk [9,10].

To mitigate and avoid phenomena related to controversies, the role of business ethics is crucial [10,11]. This effect is even more intense, especially within a well-organized and solid corporate or state institutional framework, or a well-structured corporate culture [12]. Business ethics (the term) refers to implementing the general principles of ethics in business behavior, balancing the patterns of fundamental behaviors and relationships between businesses, shareholders and employees, consumers, and the economic and social environment in which the company creatively operates [11]. In addition, implementing corporate social responsibility (CSR) has proven to be another way to deal with controversies in the business arena. CSR should be implemented by Human Resource Management (HRM) and be supported as an idea within a company, between employees and employers [13]. Thus, CSR will be established as the idea that a socially responsible company tends to be more effective in its business and society. It should not be ignored that most of the conflicts observed in companies come from the selfish behavior of managers to the detriment of shareholders. This controversy often promotes the social agenda, which can be positively addressed as it leads to aligning corporate social goals [8,14]. As controversies are a new dimension of ESG, the existing literature is limited.

• Cite  Passas, I.; Ragazou, K.; Zafeiriou, E.; Garefalakis, A.; Zopounidis, C. ESG Controversies: A Quantitative and Qualitative Analysis for the Sociopolitical Determinants in EU Firms. Sustainability 2022, 14, 12879. https://doi.org/10.3390/su14191287