The Impact of ESG Decoupling and the Role of Green Innovation on Reputational Risk: Evidence From the Global Consumer Industry

ABSTRACT This study investigates how ESG decoupling influences reputational risk and examines the moderating role of green innovation. Using 1482 firm‐year observations from globally listed consumer services companies (2015–2023), the findings reveal that while ESG decoupling may provide short‐term reputational relief, it ultimately undermines transparency and stakeholder trust. Green innovation emerges as a critical mechanism for restoring legitimacy and enhancing reputation. By focusing on the high‐visibility consumer services sector, the study offers context‐specific insights for scholars and practitioners. It contributes to ESG literature by demonstrating how innovation‐driven strategies can mitigate reputational risks arising from ESG decoupling, highlighting the strategic importance of embedding credible green innovation into corporate sustainability practices. These findings provide actionable guidance for managers, investors and policymakers seeking to strengthen ESG accountability and promote sustainable business practices.