Corporate Governance and Reputation: The Role of ESG Controversies

Abstract

This study examines how Environmental, Social, and Governance (ESG) controversies moderate the relationship between corporate governance and corporate reputation. Although strong governance mechanisms enhance reputation, recent corporate crises suggest ESG controversies may pose strong reputational risks to corporations. This study navigate this tension through stakeholder and legitimacy theory. Panel data from 419 S&P 500 non-financial firms (2014–2024) was analyzed using fixed-effect hierarchical regression models. Governance, reputation, and ESG controversies were quantified using Refinitiv and Fortune databases. Findings confirm that corporate governance significantly improves reputation. However, ESG controversies negatively moderate this effect, meaning governance alone cannot protect against reputational damage during ESG crises. The moderating effect, while statistically significant, was modest in size. Firms should integrate ESG risk oversight into governance frameworks. Boards must conduct regular ESG audits, enhance transparency, and link executive compensation to ESG performance. These actions can help mitigate reputation loss and build stakeholder trust in ESG-sensitive environments.