Purpose Environmental, social and governance (ESG) ratings have become a central mechanism for assessing, benchmarking and signalling corporate sustainability performance to financial investors. Yet, their widespread use persists despite ongoing criticism of their capacity to accurately reflect firms’ social and environmental contributions. This paper aims to examine this paradox from the perspective of rated companies, exploring why firms continue to engage with ESG ratings despite criticism of their effectiveness, even as investors remain their primary users. Drawing on institutional theory, the authors adopt this underexplored perspective and investigate how ESG ratings become institutionalised within organisations. Design/methodology/approach Based on abductive thematic analysis of 45 semi-structured interviews with sustainability executives from listed European firms, the authors develop a framework distinguishing between substantive and symbolic forms of ESG rating institutionalisation. Findings ESG rating adoption is shaped by institutional pressures and unfolds along a continuum. At one end, firms substantively integrate sustainability considerations into core operations; at the other, ESG ratings are used symbolically to secure external recognition and legitimacy. This study also highlights the risk of deinstitutionalisation if the limitations of ESG ratings remain unaddressed. Practical implications This study offers managers, investors and policymakers insights into navigating ESG pressures and strengthening the credibility of ESG frameworks while providing a diagnostic lens to distinguish symbolic compliance from substantive integration. Social implications While the potential deinstitutionalisation of ESG ratings could erode credibility, accountability and investor trust, substantive adoption could benefit transparency, stakeholder oversight and the diffusion of sustainability norms. Addressing their limitations is therefore crucial for maintaining credibility in the financial sector and directing capital towards companies with meaningful sustainability practices. Originality/value This study extends research on corporate responses to ESG ratings by drawing on institutional theory and developing a conceptual framework of symbolic and substantive institutionalisation from the perspective of rated companies. Specifically, it shifts the explanatory focus beyond firms’ strategic orientations by showing that corporate responses are also shaped by the institutional characteristics and structural limitations of ESG rating systems, thereby advancing the concept of ESG ratings’ deinstitutionalisation.
Purpose This study aims to examine whether improvements in environmental, social and governance (ESG) performance are associated with subsequent realised firm outcomes and whether board monitoring conditions these relationships. Using UK FTSE 350 firms, the study evaluates whether year-on-year ESG improvements predict ESG controversies, environmental incidents, investment inefficiency and future operating performance. It further investigates whether stronger board monitoring increases the extent to which ESG improvements are associated with favourable subsequent outcomes. Design/methodology/approach The study uses an unbalanced panel of 314 FTSE 350 firms, comprising 4,396 firm-year observations from 2010 to 2024, with ESG, governance and financial data from LSEG. Panel regressions include industry and year fixed effects with firm-clustered standard errors. Board monitoring is measured using a composite index based on board independence, CEO-chair role separation and board ESG expertise. Robustness tests include disaggregated governance components, an ESG measure excluding the governance pillar, firm fixed effects, lagged specifications and multicollinearity diagnostics. Findings ESG improvements are not consistently associated with subsequent ESG controversies, investment inefficiency or future operating performance. For environmental incidents, however, the interaction between ESG improvement and board monitoring is negative and statistically significant, indicating that the association becomes more favourable as monitoring strengthens. Component-level analyses show similar negative moderation for board independence, CEO-chair separation and ESG expertise, although statistical strength varies. The result also remains when the governance pillar is excluded from the ESG measure. Lagged specifications provide more limited evidence, indicating that the relationship is outcome-specific and not persistent across all time horizons. Research limitations/implications The study focuses on UK listed firms operating within a relatively strong governance environment, which may limit generalisability to weaker institutional settings. The board monitoring index uses equal weighting, although component-level tests reduce concerns regarding this construction. The outcome measures capture specific dimensions of realised firm behaviour and do not directly measure greenwashing, managerial intent or board detection processes. Future research could examine alternative governance measures, weighting schemes, outcome intensity, other institutional settings and additional mechanisms such as ownership structure, executive incentives and external assurance. Practical implications The findings suggest that ESG score improvements should not be interpreted in isolation as evidence of substantive operational change. For boards, the results highlight the importance of effective oversight in linking ESG initiatives to underlying business practices, particularly in environmentally sensitive areas. For investors, ESG changes may be more informative when considered alongside governance characteristics. For regulators and standard setters, the evidence suggests that enhanced ESG disclosure alone may be insufficient unless supported by governance structures that promote accountability and substantive implementation. Social implications The study has broader implications for corporate accountability and stakeholder confidence in ESG information. By showing that ESG improvements are not uniformly associated with realised outcomes, the findings reinforce the need for stronger governance and scrutiny over how sustainability claims relate to actual corporate behaviour. More credible alignment between ESG performance and operational conduct may improve the usefulness of sustainability information for employees, communities, investors and other stakeholders and may help reduce the risk that symbolic improvements are interpreted as evidence of substantive social or environmental progress. Originality/value The study contributes by shifting attention from ESG levels to the informational content of ESG improvements and their association with subsequent realised outcomes. It further shows that this relationship is conditional on board monitoring and differs across outcome types. Unlike studies focused mainly on ESG disclosure or contemporaneous firm value, this study links changes in ESG performance to future adverse events, investment efficiency and operating performance. It also provides new evidence that the environmental-outcome relationship is not solely driven by the construction of the composite monitoring index or mechanical overlap with the ESG governance pillar.
Purpose - This study aims to explore the salient identity and the perceptions of professional accountants by focusing on the interplay between individual drivers and the self-perceived salient identity in the context of climate change and sustainability accounting in the evolving environment of mandatory sustainability reporting regulations. Design/methodology/approach - This study surveys registered professional accountants in two Italian regions: Trentino and Puglia and collects 11 open-ended responses. Based on 212 responses from the survey and open-ended responses, this study frames them through the role-identity salience framework (Callero, 1985). The majority of the responses are highlighted as salient identities of professional accountants. Findings - The majority of professional accountants perceive their salient identities within the broader financial and sustainability accounting. However, they view their crucial roles to go beyond existing financial accounting practices and perform sustainability accounting to achieve Sustainability Development Goals. A key contradiction emerges in that their roles are simultaneously constrained by bureaucratic obligations, regulatory unfamiliarity and institutional inertia, indicating an identity variance. Practical implications - This study offers insights into professional accountants' perceptions of sustainability regulations and standards in a European Union member state, which professional bodies and regulators may incorporate in disseminating and streamlining the regulatory guidelines. Other jurisdictional professional bodies and policymakers may also use these findings to develop accountants' regulatory knowledge. Specifically, the findings of this study highlight the urgent need for professional bodies to move beyond technical standard-setting and actively engage in identity regulation to encompass sustainability accounting. Social implications - The salient identity crucially highlights accountants' evolving social roles in balancing financial and sustainability accounting practices. It highlights accountants' identities in bringing social practices to shape the future of the accounting profession. In the small and medium-sized enterprise (SME) context specifically, the findings underscore the consequential social role of professional accountants as capability-builders whose engagement with sustainability accounting directly shapes SMEs' capacity to contribute to the broader sustainability transition. Originality/value - This study offers novel insights into professional accountants' individual identity constructions from the internal perspective in the changing situation of climate change accounting and sustainability reporting regulations. Through the lens of role-identity salience framework and with a focus on SMEs, this study shows unique findings of accountants' opinions of their internal identities and highlights the most important (salient) ones within their self-definitions of contributing to and achieving Sustainability Development Goals.
Purpose - This paper aims to propose a conceptual model to guide public decision makers in orienting public expenditure towards sustainable development, aligning public targets with the sustainable development goals (SDGs) established by the United Nations. It addresses the need for decision-support tools that connect fiscal choices to measurable sustainability outcomes. Design/methodology/approach - This study develops a conceptual decision-support framework grounded in three perspectives: the positioning strategy of public administrations (PAs) with respect to sustainable development indicators; the maximisation of impact in terms of multidimensional well-being; and the efficiency of public resources through public-private partnership (PPP) schemes. The framework links SDG-related performance indicators, public expenditure dynamics and the design logic of Pay-by-Result (PbR) mechanisms. Illustrative policy contexts from two Italian municipalities are used to motivate the framework rather than to provide empirical validation. Findings - The model specifies a structure, key assumptions and an operational workflow that PAs can use to explore SDG prioritisation and spending alignment under alternative parameter choices. It is flexible and can be calibrated across different levels of PA, from central to local and to different sustainability measurement frameworks. Research limitations/implications - The framework points to a clear empirical agenda. Future studies can test alternative benchmarking strategies and criticality thresholds; validate and compare budget-to-SDG mapping protocols across jurisdictions; estimate SDG interaction parameters and expenditure elasticities using suitable panel data and identification strategies; and evaluate PbR-type implementations with robust causal designs, explicitly examining equity and accountability outcomes alongside efficiency. Practical implications - The framework proposed in this study offers PAs a workflow to prioritise SDGs, allocate expenditure consistently with sustainability targets and design PbR contracts that tie payments to measurable outcomes. Social implications - By orienting public spending towards SDG-aligned outcomes, the model supports more accountable and impact-oriented use of public resources, with potential benefits for multidimensional well-being at the community level. Originality/value - The paper contributes to the sustainable finance literature by connecting environmental and social public strategies to public spending trends and PbR-based PPP management within a single conceptual framework.
Purpose This paper aims to examine impact investors' perceptions of the sustainable finance disclosure regulation (SFDR) and evaluates how effectively it helps impact-generating investors in achieving positive social and environmental impacts and broader sustainable transformations. Design/methodology/approach The authors conduct an exploratory qualitative study based on semi-structured interviews with impact investment professionals. The data were analysed using a structured, interpretive approach to identify patterns in how practitioners interpret and implement the SFDR in their day-to-day work. Findings The findings reveal a regulatory-practice misalignment between the objectives of the SFDR and impact investors' goals of generating positive real-world changes. Despite improving comparability and transparency, the reporting burden, ambiguous product categorizations and ineffective metrics are identified as key concerns of the SFDR. Impact investors propose the adoption of clear labels, increased flexibility in disclosure requirements and a stronger focus on impact-generating criteria to mitigate these drawbacks. Practical implications The findings provide policy recommendations to European legislators and policymakers on refining the SFDR to better align with the needs, goals and practices of impact investors. Social implications Impact investors offer financial products with strong potential to generate social and environmental change. Aligning the SFDR with impact-generating practices ensures that the regulation effectively supports such investments. Originality/value To the best of the authors' knowledge, this study is among the first to provide a practitioner-focused analysis of how impact investors interpret and operationalize the SFDR. It contributes to sustainable finance regulation research by conceptualizing the misalignment between regulatory design and impact investing practices as regulatory-practice misalignment.
