Unmasking ESG-washing: the power of transparency and gender diversity on firm value in the energy sector

Abstract

Drawing from the legitimacy and signaling theories, this paper aims to investigate the impact of environmental, social and governance (ESG)-Washing on the market value of energy companies, considering the role of the firm’s board gender diversity (BGD) and the disclosure of a corporate social responsibility report (CSRR) on this relation. For this purpose, 173 companies from all over the world that operate in the energy sector were considered for the period between 2015 and 2024. The Generalized Method of Moments System (GMM-system) was used. Results indicate that ESG-washing (ESGW) negatively affects firm value, whereas CSRR has a positive effect and helps to mitigate the negative impact of ESGW. In contrast, BGD has a negative effect on firm value and amplifies the negative impact of ESGW on market performance. The findings suggest that managers/directors in ESG-sensitive industries, such as energy, should treat transparency and governance as substantive strategic tools rather than symbolic practices. Credible CSR reporting can mitigate market penalties associated with ESGW, whereas BGD, although inherently valuable, must be aligned with genuine ESG commitments to avoid adverse market reactions. These insights offer practical guidance for firms seeking to enhance resilience to ESG-related risks and safeguard firm value. This also highlights the broader social impact, as fostering gender diversity and increasing transparency not only improves corporate practices but also contributes to social equality and accountability, promoting a more sustainable and ethical business environment. This study contributes to the literature by jointly examining ESGW and its impact on firm value, while incorporating the roles of BGD and corporate social responsibility reporting (CSRR) within a unified empirical framework, focusing on a highly ESG-sensitive industry.