The ESG Paradox in Competitive Markets. Evidence of Stakeholder Pressure and Managerial Autonomy

The integration of Environmental, Social, and Governance (ESG) principles into corporate strategy has reshaped governance and performance evaluation frameworks. While ESG mechanisms aim to enhance stakeholder alignment and accountability, they may also constrain managerial autonomy. This study examines this tension through the ESG paradox, analyzing whether stakeholder-driven ESG pressure limits managerial discretion and how market competition moderates this relationship. The empirical analysis is based on firm-level panel data for companies included in the STOXX Europe 600 index over the period 2018–2024. ESG indicators are obtained from the Refinitiv ESG database, financial data from Refinitiv Eikon, and market competition is measured using the Herfindahl–Hirschman Index (HHI). Panel regression models are employed. The results indicate that ESG engagement and managerial autonomy are positively associated with firm performance. However, ESG pressure is negatively related to managerial autonomy, suggesting potential constraints. Market competition moderates these effects. The study contributes by highlighting ESG as both a governance mechanism and a potential strategic constraint.