Environmental, social and governance investor pressure sometimes causes firms to shift pollution to suppliers

Investors who evaluate companies using environmental, social and governance (ESG) criteria are increasingly expected to act as private regulators, using their influence as stakeholders to pressure firms to act more sustainably. New research published in Strategic Management Journal finds that companies under strong ESG investor pressure generate lower direct emissions. However, they sometimes shift pollution to suppliers, which does not change their combined emissions. The study also found evidence that this outsourcing can be reduced when investors help firms adopt eco-friendly technologies and directly oversee supplier practices.

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