ESG Alone Is Not Enough: Why Investors Need to Perform 'Triple Checks'

In recent years, Environmental, Social, and Governance (ESG) criteria have become a primary indicator in investment decision-making. Companies with high ESG scores are often perceived as more responsible, sustainable, and carrying lower long-term risk. However, does an ESG reputation truly reflect a company’s overall quality? Recent research titled ‘From Triple Bottom Line to Triple Checks: The Interplay Between ESG, Conservatism, and Investor Trust’ suggests the answer is not always. The study analysed 13,398 firm observations from 30 countries over the 2010–2022 period. The research was conducted by Suham Cahyono (Doctoral Candidate in Accounting Science, Universitas Airlangga), Prof. Dr. Ardianto, SE., M.Si., Ak., CA., (Professor of Behavioural and Performance Accounting, Universitas Airlangga), and Prof. Dr. Hadrian Geri Djajadikerta (Professor, School of Accounting, Finance, and Economics, Curtin University, Australia). The results revealed a rather surprising finding: the higher a company’s level of ESG disclosure, the lower its level of accounting conservatism. In other words, companies that are highly active in building a sustainability narrative do not necessarily apply the same prudence principles in their financial reporting. Why is this important? Accounting conservatism is a principle that encourages companies to be more cautious in recognising profits and quicker to recognise potential losses. This principle has long been viewed as a mechanism to protect investors from overly optimistic financial statements. When conservatism weakens, there is a risk that financial information becomes less reliable, even if the company has a good ESG image. These findings do not mean that ESG is a bad concept. On the contrary, ESG remains important as an indicator of corporate responsibility towards the environment, society, and governance. However, this research serves as a reminder that ESG can turn into a mere symbol if not accompanied by adequate financial reporting quality. Under certain conditions, an ESG reputation can even create excessive trust, causing investors to become less critical of the company’s financial report quality. This phenomenon is often associated with greenwashing, where a company builds a strong sustainability image through various disclosures, but its business practices and information quality do not yet fully reflect that commitment. The research found that this condition is more likely to occur in companies with high public legitimacy, especially in developed countries and firms with strong governance, because their reputation tends to be more easily trusted by the market. Based on these findings, the authors propose a new approach called ‘Triple Checks’. This approach invites investors not only to evaluate ESG scores but also to examine two other aspects: the quality of accounting conservatism and the level of investor trust in company information. These three aspects must be assessed together to distinguish truly sustainable companies from those merely building a sustainable image. For regulators, the study conveys that ESG reporting standards should not only focus on the quantity of information disclosed but also ensure that the information is supported by quality financial reporting and effective oversight mechanisms. Meanwhile, for investors, an ESG score should be the starting point of analysis, not the end of the decision-making process. Ultimately, corporate sustainability cannot be measured solely by how well they narrate their ESG story. True sustainability must be reflected in the consistency between the narrative, the financial figures, and disciplined governance. In the era of sustainable investment, market trust cannot be built on image alone but must be reinforced with verifiable evidence. That is the essence of the Triple Checks approach.