“A firm’s exposure to competition is negatively associated with its ESG performance. We measure domestic competitive pressure by product market fluidity, based on product text descriptions, and find that higher fluidity – indicating higher product market threats – is associated with lower ESG scores. Fluidity matters more for financially constrained firms, capital-intensive industries, and costly activities, as well as firms with shorter-term shareholders. Increasing exposure to Chinese import competition is associated with a reduction in ESG scores. This effect of import competition is stronger for firms less exposed to domestic competition. Local climate attitudes moderate the effect of competitive pressure.”

By Vesa Pursiainen, University of St. Gallen and Swiss Finance Institute; Hanwen Sun, University of Bath, School of Management; Yue Xiang, University of Bath, School of Management. September 23, 2023, Swiss Finance Institute Research Paper No. 23-69, Switzerland.