Do Employees Have Useful Information About Firms' ESG Practices?

This study evaluates whether employees have window-dressing-free information about firms' ESG (Environmental, Social, Governance) practices. Analyzing 10 million employee reviews, it reveals that 43% of reviews discuss ESG topics, with governance surprisingly receiving the most attention. Assembling novel hard-to-manipulate ESG indicators, including emissions estimates from satellite imagery, the study finds employees' ESG inside view is more informative about these indicators than existing ESG ratings. Moreover, the inside view appears robust to ESG cheap talk, as low-cost changes in firms' ESG commitments do not affect it, while costlier changes do. Thus, employee perspectives can help investors assess firms’ authentic ESG performance.