Negative ESG Incidents and Corporate Political Connections

Negative ESG incidents and practices have gained traction in the recent past, severely damaging the firm's reputation and survival. Firms may adopt political investment strategies to mitigate the risks associated with these negative ESG incidents. Using corporate political contributions in the US, we find that firms with greater negative ESG incidents tend to have a higher intensity of political connections, measured by both the number of candidates the firm supports and the hard-money contributions in their election campaigns. Our results show that the intensity of association between corporate political connections varies across the three components of ESG. Further evidence suggests that the equity-based compensation of the board of directors is positively associated with political candidates supported and total contributions. Finally, we show that such corporate political connections positively moderate the firm's value of negative ESG incidents firms. Overall, drawing on institutional theory, this paper shows that firms with negative ESG incidents consider investing in political strategies essential to construct new legitimate standards