ABSTRACT This study examines whether, and in what ways, the state of the economy, particularly during recessions, affects firms’ environmental, social, and governance (ESG) engagement. Using global firm‐year ESG data from 2002 to 2023, with emphasis on the 2007 to 2009 Global Financial Crisis and the 2020 COVID‐19 recession, we document a robust increase in ESG scores during downturns. Mechanism tests reveal the most substantial evidence for a survival channel: firms emphasize pragmatic, cost‐effective ESG actions such as lowering direct emissions, limiting layoffs, and adopting crisis/ESG governance practices, including assurance. Robustness checks using PPP loan dependence and local unemployment rates confirm that economically harder‐hit firms raise ESG scores during recessions. For the legitimacy channel, higher litigation risk is positively associated with ESG in levels but does not amplify further during recessions. Results for the stakeholder channel are mixed: although firms with stronger stakeholder support generally get higher ESG scores, their advantage narrows during recessions as other firms engage in ESG related behavior as well. Finally, difference‐in‐differences analysis show that recession‐era ESG was not linked to improved post‐crisis outcomes after 2008 but was positively related to operational outcomes after COVID‐19, suggesting an evolution in the strategic integration of ESG.
Fan et al. (Fri,) studied this question.