Study Overview
While prior research has examined the consequences of corporate environmental, social, and governance (ESG) activities, less is known about firms’ underlying motives for engaging in ESG. We use artificial intelligence to analyze annual ESG reports and classify firms’ ESG motivations into three categories: moral duty or altruism (ALTRUISM), value creation or market demand (MARKET), and regulatory compliance or risk management (RISK). We construct firm-year measures capturing the relative prominence of these underlying motivational logics and document substantial cross-sectional and temporal variation.
Study Results
We find that ESG motivation is systematically related to firms’ fundamentals, organizational environments, and governance characteristics, and that motivations shift around internal shocks and salient external events. Firms emphasizing strategic motives—market and risk rationales—are associated with higher ESG performance relative to firms emphasizing altruistic motives. Mediation analyses suggest that this association operates in part through deeper integration of ESG into broader operational strategy and governance structures. We further show that ESG motivation is related to the types of ESG activities firms pursue: risk-motivated firms exhibit fewer ESG controversies and violations, while altruism-oriented firms engage in more charitable donations. Overall, our findings highlight how differences in firms’ underlying ESG motivations are associated with variation in ESG implementation and outcomes, underscoring the importance of considering the “why” behind corporate ESG engagement.