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

Author

Listed:
  • Nguyen, Dat Thanh
  • Tran, Vuong Thao
  • Phan, Dinh Hoang Bach
  • Nguyen, Quang Thi Thieu

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.

Suggested Citation

  • Nguyen, Dat Thanh & Tran, Vuong Thao & Phan, Dinh Hoang Bach & Nguyen, Quang Thi Thieu, 2025. "Unmanaged ESG risks and corporate performance – The impact of management gaps," Finance Research Letters, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finlet:v:83:y:2025:i:c:s1544612325009651
    DOI: 10.1016/j.frl.2025.107707
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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