Green or Blue? The Effect of Sustainability Committees on ESG Decoupling

Abstract

This study investigates the impact of sustainability committees on firms' ESG decoupling and examines the discrepancy between corporate sustainability claims and actual practices. As sustainability becomes increasingly integral to business operations, stakeholders are keen to understand whether firms genuinely align their practices with their stated sustainability goals. This study explores how the presence of a sustainability committee, as a board-level governance mechanism, influences both internal and external ESG actions. Analyzing a large sample of 2,759 publicly traded U.S. firms from 2002 to 2021, we find that sustainability committees are associated with an overall increase in ESG decoupling. Further breakdown reveals that while these committees help reduce environmental decoupling, they exacerbate social and governance decoupling, suggesting possible instances of "bluewashing." We ensured the robustness of these results using alternative decoupling measures, propensity score matching, and the Heckman two-stage method. A cross-sectional analysis reveals that the positive relationship between sustainability committees and ESG decoupling is stronger in firms with higher analyst coverage and weaker in those with greater institutional ownership. Moreover, the relationship between sustainability committees and social decoupling is more pronounced in firms receiving more media attention on ESG issues.

Keywords: ESG decoupling, Sustainability committees and Bluewashing