Accountability Beyond ESG Disclosure: Credibility, Governance Integrity, and The Sustainability‐Signaling Gap in European Finance

K. Ragazou;

HIGHLIGHT

ABSTRACT This study addresses significant limitations in Environmental, Social, and Governance (ESG) evaluation by transcending disclosure‐based metrics and presenting a credibility‐focused analytical methodology that assesses the congruence between sustainability signals and substantive performance.

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ABSTRACT

This study addresses significant limitations in Environmental, Social, and Governance (ESG) evaluation by transcending disclosure‐based metrics and presenting a credibility‐focused analytical methodology that assesses the congruence between sustainability signals and substantive performance. Departing from interpretations of ESG that focus solely on disclosure, this study conceptualizes ESG governance as an accountability‐driven process. It introduces the sustainability‐signaling gap as a quantifiable measure of ESG credibility. Drawing upon signaling and legitimacy theory, a combined fuzzy multi‐criteria decision‐making (MCDM) framework is constructed. This framework incorporates the fuzzy best–worst method, the measurement of alternatives and ranking according to compromise solution ranking model, and a diagnostic sustainability gap index (SGI). The framework is then applied to a representative sample of 377 publicly traded European financial institutions spanning the years 2021 to 2024. This analysis utilizes governance quality, disclosure integrity, ESG performance, and environmental outcome indicators obtained from Refinitiv. The greatest calibrated importance is assigned to green‐asset alignment and governance quality in the findings, while disclosure integrity remains central to diagnosing the correspondence between measured performance and sustainability communication. A recurring disparity between ESG signaling and tangible sustainability results is evident throughout the industry, indicating that disclosure‐based strategies often coincide with limited substantive governance and environmental performance. By pinpointing systematic tendencies of both excessive and insufficient signaling, the SGI offers a performance‐focused diagnostic instrument for assessing ESG accountability. This study advances the fields of corporate social responsibility and sustainability governance by translating legitimacy and signaling theory into an actionable assessment framework, thereby providing regulators, supervisors, and financial institutions with a replicable method for identifying superficial ESG practices and enhancing accountability within sustainable finance.

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