August 21, 2025SustainabilityOpen Access

The ESG Paradox: Risk, Sustainability, and the Smokescreen Effect

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Observational analysis links esg scores to financial risk in corporations, suggesting greenwashing risks.

Corporate focus on governance over environmental and social aspects leads to minimal contributions to sustainable development goals.
Governance scores were found to significantly predict financial risk, with higher scores potentially masking environmental shortcomings.
Using panel data and the Generalized Method of Moments technique, relationships between esg scores and financial risk were thoroughly examined.
These findings highlight the need for a more transparent and balanced approach to esg that combines sustainability with financial resilience.

Makkar et al. (2025) studied this question.

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