ESG: A panacea for market power?

Philip Bond and Doron Levit

Journal of Financial Economics, 2025, vol. 165, issue C

Abstract: We study the equilibrium effects of the “S” dimension of ESG under imperfect competition. ESG policies are pledges made by firms that constrain managers to treat their stakeholders better than market conditions alone dictate. Moderate policies limit market power and prompt managers to be more competitive; aggressive polices backfire, both for adopting firms and intended beneficiaries. In contrast to the “shareholder primacy” paradigm, competition in ESG policies under the “stakeholder capitalism” paradigm is a panacea for market power, delivering the first-best outcome in equilibrium. We discuss drivers behind the recent rise in ESG, ESG-linked compensation, and disclosure practices.

Keywords: ESG; Shareholder primacy; Stakeholder capitalism; Corporate social responsibility; Corporate governance; Market power (search for similar items in EconPapers)
JEL-codes: D74 D82 D83 G34 K22 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:165:y:2025:i:c:s0304405x24002149

DOI: 10.1016/j.jfineco.2024.103991

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