From green to red: How ESG controversies drive energy firms toward insolvency Investigating the link between environmental, social and governance (ESG) controversies and insolvency risk in the energy sector through the lens of stakeholder theory
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2025-06-30
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en
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This thesis explores how environmental, social, and governance (ESG) controversies influence insolvency risk in the energy sector and whether board-level governance moderates this relationship. Drawing on stakeholder theory, the study proposes that ESG controversies erode stakeholder trust and legitimacy, which are core resources of organizational resilience. By triggering reputational damage, they increase financial vulnerability. A dataset of publicly listed energy firms from 2011 to 2023 is analysed using OLS regression, with insolvency risk measured via the Altman Z"-score.
The findings reveal a statistically significant positive association between ESG controversies and insolvency risk, even when controlling for overall ESG performance. Although strong ESG performance is associated with reduced risk, it does not fully offset the effects of controversies. Board independence shows a small buffering effect, while board gender diversity has no significant moderating influence. Board size is consistently linked to higher insolvency risk.
This study contributes to stakeholder theory by demonstrating how stakeholder misalignment can translate into tangible financial consequences. It also offers the insight that governance mechanisms, while often assumed to reduce ESG risks, may carry more symbolic or regulatory value than practical influence.
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Faculteit der Managementwetenschappen