Image showing stock market trends alongside billowing smoke from a factory.

Recent research has revealed that NGO campaigns can not only cause reputational harm, but actually result in a negative stock price reaction when activists allege that a firm has made misleading environmental and social claims. 

NGOs and businesses are often perceived as being fundamentally opposed with no common ground, a constant thorn in the other’s side. But as ESG performance becomes even more crucial for companies to earn their social operating license, NGO campaigns play an important role in holding companies accountable and eventually, bettering corporate behaviour to ensure companies are aware of their impacts on the world around them.

A team of academics was motivated to conduct this study due to the growing importance of ESG in financial markets and the lack of systematic evidence on the role of NGOs in this domain despite their recognized leadership in sustainable development. Using SIGWATCH data, the researchers were able to understand the sum of an NGO’s allegations against a firm as well as the ‘allegation sentiment’ and the ‘NGO influence’ including geographic reach. These were read alongside other data sources and corporate registers to arrive at the conclusions.

To learn more about the research, the findings and what it means for the future of ESG, read the below Q&A with the research team Janja Brendel, The Chinese University of Hong Kong (CUHK); Cai Chen, INSEAD; Thomas Keusch, INSEAD and Zacharias Sautner, University of Zurich and Swiss Finance Institute.


Q: What are the main takeaways from the paper?

We document that advocacy NGOs play an important role in the ESG space. Notably, there is a significant negative stock price reaction when NGOs allege that firms make misleading or false environmental and social (E&S) claims. These NGO campaigns typically accuse firms over statements related to climate change, consumer health, and waste handling. Firms facing E-related allegations tend to disclose less environmental information and reduce future carbon emissions. All of these results indicate that NGO campaigns are catalysts for wider reactions by investors.

Q: How can businesses make use of campaigning against them?

Firms can leverage NGO campaigns against them by proactively adopting more transparent and responsible ESG practices, including firm disclosures. This allows them to get ahead of potential allegations from NGOs about misleading or false claims, mitigating the severe reputational and financial impact that can result from such campaigns. When firms are transparent about their ESG performance and can demonstrate genuine efforts to improve, they may become less vulnerable to stock market reactions and can better control the narrative around their sustainability efforts. Rather than simply reacting defensively, companies should view NGO campaigns as an opportunity to enhance their transparency and their responsible business practices.

Q: What did your work reveal about which firms are chosen as targets and do they suffer at the stock market as a consequence?

The study reveals that NGOs tend to target large, high-profile firms in the consumer and oil/gas sectors. The average firm we observe faces a negative return of -0.34% over the three-day window centred on the E&S-washing allegation date. In addition, stock markets react significantly more negatively when NGOs allege that companies have made misleading or false claims regarding material environmental and social issues. These findings suggest that when NGOs successfully identify and publicize instances of material E&S-washing, investors appear to respond with heightened scepticism and concerns.

Q: Based on your study, how do you see the role of NGOs in society?

Our findings suggest that NGOs play an important role in society by exposing corporate malpractices and pressuring firms to improve their ESG performance. As NGOs heavily depend on public credibility, they have typically built trust over time. Consequently, their accusations can significantly influence public opinion. It seems NGOs can take up a complementary role to other monitors, such as investors, regulators or media. Therefore, NGO scrutiny plays an important role in holding companies accountable and ensuring the integrity of their environmental and social communications. There is also quite some anecdotal evidence that major institutional investors started to engage with companies over E&S issues after NGOs exposed malpractices.

Q: What do you think is the future of ESG?

We feel that the future of ESG seems to increasingly depend on the interaction and pressure of multiple stakeholders, such as investors, customers, employees, and especially NGOs. ESG will remain important as growing environmental pressures, evolving social expectations, and heightened governance oversight are driving investors, regulators, and the public to demand greater corporate accountability and transparency around sustainability issues. With new ESG-related regulations emerging globally, companies can no longer afford to treat these factors as peripheral concerns. Integrating ESG principles into core business strategy has become essential for companies to remain competitive, resilient, and responsible corporate citizens.

Do get in touch if you’d like to know more about how NGO campaigning can affect your business. The full paper can be accessed here.

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