Inside the “Black Box” of Corporate ESG Practice: Field Evidence from China

Abstract

The objective of this study is to open the “black box” of environmental, social, and governance-(ESG) related management practices at Chinese corporations and examine the relationship between corporate ESG impact and shareholder value. We survey Chinese publicly listed firms covering a wide range of topics on their ESG-related management practice, including their motives, challenges, perceptions, and current ESG integration efforts into their business operations. Our survey findings suggest that Chinese corporations exhibit significant variation in their development of ESG-related management practices. Whereas shareholder and/or investor-related motives comprise the most significant drivers, lack of clear and transparent guidelines are perceived as the biggest challenges for ESG engagement by Chinese corporations. Consistent with prior research that ESG investments may be associated with benefits to other stakeholders potentially at the expense of shareholders, we document a non-linear inverse U-shaped relationship between corporate ESG impact and shareholder value. Thereby, our findings do not only have implications for academic researchers, but also for regulators, standard setters, and practitioners in designing policies to enhance greater engagement on ESG-related issues by Chinese corporations.