Discussion paper

DP18734 ESG: A Panacea for Market Power?

We study the equilibrium effects of the "S" dimension of ESG under imperfect competition in labor or product markets. We model ESG policies as constraints that boards place on managers to treat their stakeholders well. "Doing Well by Doing Good" holds for moderate ESG policies, which are strategically beneficial. Aggressive ESG policies backfire, both for adopting firms and many stakeholders. Under shareholder primacy, competition in ESG policies generally reduces shareholder value, while coordination on policies raises new anti-trust concerns. Under stakeholder capitalism, competition in ESG policies is a panacea to market power and delivers the first-best outcome in equilibrium.


Bond, P and D Levit (2024), ‘DP18734 ESG: A Panacea for Market Power?‘, CEPR Discussion Paper No. 18734. CEPR Press, Paris & London. https://cepr.org/publications/dp18734