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Simony as strategy? The role of political contributions in managing ESG engagement
R Carè1, M Cerciello2, R Fatima3
1School of Environment, Enterprise and Development (SEED), University of Waterloo, 200 University Avenue West, Waterloo, Canada.
Abstract:
This study examines the relationship between political contributions and Environmental, Social, and Governance (ESG) measures in US firms. Using data from LSEG Workspace (2010-2023), we implement GMM-SYS estimation to analyze the impact of corporate political donations on ESG metrics. Our results show that political contributions increase the ESG Score (through the E and G pillars) but also cause more ESG controversies for the firm. This suggests that firms may resort to political donations to obtain artificially high ESG Scores, which however do not translate into fewer ESG controversies. This work makes three key contributions. First, it bridges a gap in the literature by empirically examining the interplay between political donations and ESG performance across the three ESG pillars. Second, it highlights the dual role of political contributions: enhancing ESG scores while exacerbating ESG controversies, thus raising concerns about greenwashing practices. Lastly, our findings emphasize the importance of strengthening regulatory oversight to ensure that political activities do not undermine corporate sustainability goals.
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