Unmanaged ESG risks and corporate performance – The impact of management gaps

Dat Thanh Nguyen, Vuong Thao Tran, Dinh Hoang Bach Phan and Quang Thi Thieu Nguyen

Finance Research Letters, 2025, vol. 83, issue C

Abstract: This study contributes to the Environmental, Social, and Governance (ESG) literature by providing a detailed analysis of ESG risks and their impact on corporate performance. While previous research has primarily relied on aggregate ESG measures, our approach focuses on the heterogeneity of ESG risks, particularly unmanaged risks and management gaps. Using data from 2,350 U.S. firms over the period 2018–2023, we find a statistically significant negative relationship between total ESG risk and firm performance. Notably, this negative impact is primarily driven by unmanaged ESG risks, with management gaps exerting an influence approximately eight times greater than that of unmanageable risks. The effect of unmanaged ESG risks is most pronounced in the first year, diminishing in subsequent years. Our findings remain robust even after controlling for endogeneity and conducting various robustness tests.

Keywords: ESG risk; Unmanaged risk; Management Gap; Financial performance (search for similar items in EconPapers)
JEL-codes: D22 G32 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:83:y:2025:i:c:s1544612325009651

DOI: 10.1016/j.frl.2025.107707

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