Do Employees Have Useful Information About Firms' ESG Practices

This paper investigates whether employees have useful information for assessing firms’ environmental, social, and governance (ESG) practices. I analyze 10.4 million anonymous employee reviews via a word-embedding model to construct an inside view of corporate ESG practices. The inside view offers significant information beyond external ratings in predicting a firm’s future misconduct, governance issues, downside risk, growth, and valuation. In addition, the inside view appears robust to greenwashing, theoretically and empirically. In various settings, including a novel court ruling, I show that low-cost changes in a firm’s stated ESG policies do not affect the inside view, while costlier changes do.