Work

ESG in Financial Markets and Corporate Practice: Teaching Why Acting Together Is Hard with Three Games on Enforcement, Verification, and Common Knowledge

Year: 2026

Type: article

Abstract: Corporate ESG commitments and claims can fail for the same reasons as collective action initiatives for sustainability, yet classroom games usually teach only one of them, the free-rider problem. This paper argues that collective action fails for three distinct reasons and proposes a short game for each. A cheating game, a public goods game played without and then with monitoring, teaches the enforcement gap: contributing is efficient but not individually rational unless non-contribution is detected and sanctioned. A bluffing game, in which firms claim to be green, teaches the verification gap: when claims are free, the word “green” earns no premium until verification makes false claims costly. A hats puzzle followed by a stag hunt teaches the common knowledge gap: conditional cooperation requires that everyone knows that everyone knows, so compliance must be visible. Each game is mapped to the institution that closes its gap, and each gap has a counterpart in corporate practice and financial markets, from net-zero pledges without penalties and unverified ESG disclosures to ESG ratings that coordinate investors’ beliefs. The paper provides payoff tables, equilibrium predictions, debriefing questions, and a teaching note for a 90 min session. The proposal has not yet been evaluated in a classroom.

Source: Sustainability

DOI: 10.3390/su182111283

Authors: Heejin Yang, Doowon Ryu

Institutions: Dongguk University WISE, Kyung Hee University

Language: English

Topic: Corporate Social Responsibility Reporting

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: gold

Estimated APC paid: $2,896

Funder: Kyung Hee University