The Cost of ESG Decoupling: How Misaligned Disclosures Undermine Corporate Sustainability?

This paper investigates a novel problem of ESG (environmental, social, and governance), namely the decoupling phenomenon that corporate ESG information disclosure is inconsistent with actual performance. Based on 12,551 company-year observations of Chinese A-share listed companies from 2009 to 2022, we investigated the impact of ESG decoupling on corporate sustainable development and explored the underlying mechanisms from the perspective of stakeholder theory. We find that ESG decoupling significantly undermines corporate sustainability. Mechanism analysis shows this negative impact results from reduced stability in customer partnerships and increased corporate financing constraints. Further considering the moderating role of China’s institutional environment on this impact, a strong formal institutional environment (e.g., regulatory framework) reduces this negative effect, whereas the informal institutional environment (e.g., media attention) amplifies it. The research underscores the importance of aligning actions with disclosures, offering practical recommendations for corporate sustainable development. JEL Classification: M14.