Is ESG a Scam? The Bankruptcy Risk of ESG Talk Without Walk

Author : Yousry Ahmed

Abstract : This paper examines whether ESG decoupling—the misalignment between corporate ESG disclosure and actual ESG performance—is associated with corporate bankruptcy risk. Using a sample of 18,740 U.S. firm-year observations, we document that greater ESG decoupling is associated with a significantly higher likelihood of bankruptcy. We further show that ESG decoupling manifests in several constraint- and risk-amplifying factors: high-decoupling firms face tighter financial constraints, elevated stock return and operating-income volatility, and a higher likelihood of adverse audit related internal control opinions. These findings are robust to alternative specifications and to approaches that address endogeneity and selection concerns, including instrumental-variable and Heckman procedures, as well as tests across macroeconomic conditions and major crisis periods. Collectively, the evidence indicates that ESG “talk without walk” is not merely reputational, it is associated with governance and financing frictions that heighten vulnerability to corporate collapse. By documenting ESG decoupling as a salient indicator with real economic consequences, this study provides insights that are relevant to investors, auditors, and regulators seeking to assess firm stability in an environment of growing reliance on ESG information

Keywords : ESG Decoupling, ESG Disclosure, ESG Performance, Bankruptcy Risk, Financial Constraints.

Conference Name : International Conference on Green Finance and Sustainable Accounting (ICGFSA - 26)

Conference Place : Milan, Italy

Conference Date : 7th Sep 2026