Amid growing global attention to Environmental, Social, and Governance (ESG), this study examines the misalignment between ESG disclosures and actual practices—termed ‘lip service’ —using data from Chinese firms from 2006 to 2022, constructing an index to quantify it. The findings indicate that such behaviour is more common in high-emission and capital-dependent industries, significantly undermining firm value. External oversight mechanisms (media, analysts, and institutional investors) and CEO compensation incentives help mitigate its impact, whereas traditional governance tools, such as managerial ownership and CEO duality, are largely ineffective. The severity of this behaviour is influenced by pollution levels, ownership structure, business risk, and the tone of annual reports. Further analysis reveals that ‘lip service’ also weakens financial performance, including earnings per share, net profit, and corporate reputation. These findings highlight the economic risks of ESG inconsistencies and underscore the need for stronger regulatory enforcement and active stakeholder supervision to promote genuine ESG engagement.
Xu et al. (Sat,) studied this question.