Do environmental, social, and governance (ESG) scores accurately represent corporate responsibility? Wei Wang, published in the Review of Accounting Studies, finds that banks with higher ESG scores grant fewer home mortgage loans in low-income areas. Mortgage loans are widely regarded as important to low-income communities’ securing housing and wealth.
Wang suggests that some banks are using ESG narratives to appear more socially responsible while not actually lending to disadvantaged communities, a phenomenon the author refers to as “social wash.” Stakeholders looking for socially responsible banks should not take ESG scores at face value.