Sustainability Initiatives: Solution or Decoupling Tool? A Natural Resource-Based View on Sustainability and Financial Performance Effects of Membership in the UN Global Compact
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- Master Thesis 
In absence of uniform global regulation for corporate sustainability conduct, initiatives such as the United Nations Global Compact (UNGC) are being established to promote voluntary ESG efforts. Although the UNGC claims to improve the ESG performance of its members, previous research suggests that lax reporting requirements, basic best practices and limited enforcement mechanisms might actually foster decoupling behaviour. To shed light on the efficacy of sustainability initiatives, we investigate whether membership in the UNGC improves corporate sustainability and financial performance. To this end, we construct a panel data set for the period 2007-2020 with 294 UNGC companies and over 12,000 control companies. Employing difference-in-differences and instrumental variable methods, we find that membership in the UNGC has a negative effect on ESG performance, but no significant effect on financial performance. We show that companies, which exhibited an above industry average ESG conduct prior to joining drive the negative effect of ESG-performance, suggesting decoupling behaviour amongst this subgroup. At last, we explore the rationale behind the performance effects. We demonstrate the inapplicability of signaling theory in the context of the UNGC by identifying insignificant stock market reactions to joining announcements. Instead, we show that access to sustainability resources is a channel through which ESG performance is affected and thereby provide evidence for the Natural Resource-Based Theory (NRBT) (Hart, 1995). Following the NRBT, and contrary to promoted claims, UNGC membership neither builds strategic capabilities nor generates a sustainable competitive advantage.