Substance over symbols: the impact of ESG decoupling and corporate governance on market capitalization in the UK

Abstract

Abstract

Purpose This study aims to examine the stock market reactions to environmental, social or governance (ESG) decoupling and corporate governance in UK nonfinancial firms. The authors investigate how social decoupling and greenwashing affect market capitalization (MC). They also analyse the impact of key governance mechanisms, including board diversity, institutional ownership and corporate social responsibility (CSR) committees. Design/methodology/approach Our study analyses a data set of 1,764 firm-year observations of publicly listed nonfinancial firms in Financial Times Stock Exchange (FTSE) All-Share between 2014 and 2024. The hypotheses are tested using fixed-effect regression model. Findings The authors find a significant negative relationship between social decoupling and MC. In contrast, environmental greenwashing has no significant effect on MC. Regarding governance, institutional ownership and board gender diversity are positively valued by investors. However, the presence of a CSR committee is negatively associated with MC. This indicates that CSR committee could be perceived as a symbolic gesture rather than a substantive commitment to oversight. Our main findings remain constant when using Tobin’s Q as an alternative measure for MC. Research limitations/implications This study uses data from nonfinancial sector in FTSE All-Share in UK, which may limit the generalizability of the findings to other industries or countries. Practical implications The findings provide a warning to corporate managers against the “talk vs walk” strategy on social issues as it could destroy their firms’ value. For investors and regulators, this study highlights the need for standardized, verifiable disclosures to distinguish genuine environmental performance from superficial claims. Originality/value This study demonstrates how the UK stock market responds to different forms of symbolic ESG action. The results are a caution to managers that social decoupling and symbolic governance structures such as standalone CSR committees may undermine firm market value. For investors and regulators, These results highlight the importance of scrutinizing the substance of ESG commitments over superficial claims.