Whose Sustainability Counts? Board Governance, ESG Ratings, and Sustainable Development Goals: Evidence on the ESG–SDG Wedge

Abstract

Institutional investors increasingly rely on ESG ratings to evaluate financially material sustainability risks, while governments promote corporate alignment with the United Nations Sustainable Development Goals (SDGs). Because these frameworks differ substantially in capital market salience and monitoring intensity, board oversight may not uniformly enhance sustainability performance but instead reallocate attention across competing evaluative regimes. Drawing on institutional logics theory and the attention-based view of the firm, we develop the ESG–SDG wedge, a novel measure capturing within-industry-year divergence between standardized ESG ratings and SDG alignment breadth. Using panel data on 951 publicly listed firms across US and European markets from 2018 to 2023 (4404 firm-year observations), we estimate two-way fixed effects (TWFE) models and implement staggered difference-in-differences designs around 173 CSR committee adoption events using the Sun and Abraham (2021) interaction-weighted estimator combined with inverse probability weighting. We find that CSR committees are associated with ESG–SDG wedges 0.21 standard deviations larger than comparable peers, with causal estimates approaching 0.30 standard deviations under validated parallel trends. Board industry-financial expertise exhibits similar patterns. Mechanism analyses reveal pronounced asymmetry: Governance structures relate substantially more strongly to ESG ratings than to SDG alignment. This divergence is concentrated among US firms relative to European counterparts and varies systematically across industries with differing ESG materiality profiles. These findings challenge the assumption that specialized oversight uniformly strengthens multidimensional sustainability performance. Board governance reallocates constrained attention toward criteria embedded in capital market processes, generating systematic divergence across sustainability frameworks—with important implications for corporate sustainability governance design, ESG investment strategy, and sustainable development policy.