Gateway Clubs: How ESG Indices Reinforce Transnational Voluntary Environmental Initiatives

Abstract

Many initiatives marshaling voluntary commitments to corporate sustainability have grown enormously through the inducement of reputational benefits and the partnership of NGOs and international organizations. Yet, as participants increasingly include lessthan-ambitious companies, growth can nonetheless accelerate, even as it undermines the reputational distinction that membership originally offered. Why do initiatives then continue to draw new members? In this article, we advance a novel explanation: transnational environmental governance can become “embedded” in a parallel economic or political context such that joining “gateway clubs” becomes a means of ensuring access to external benefits. We demonstrate our argument with the case of the United Nations Global Compact (UNGC), where alignment with UNGC principles became a key criterion for inclusion in the S&P 500 ESG Index in January 2019. Using a difference-indifferences approach, our results suggest that US-domiciled companies eligible for S&P indexation were more likely to join and remain in the UNGC after January 2019.