Digital Catch-up or ESG Diversion? -Strategic AI Adoption in Emerging Asian Markets-

This study investigates whether artificial intelligence (AI) adoption in emerging Asian markets drives authentic ESG improvement or facilitates symbolic compliance through what we term “ESG diversion.” Drawing on institutional theory and signaling perspectives, we analyze the relationship between AI adoption and ESG performance using 1,260 firm-year observations from six Asian economies between 2017-2023. Our findings reveal that AI adoption is associated with significantly higher ESG scores, with adopting firms scoring 8.98 points higher than non-adopters. Critically, this relationship persists regardless of firms’ digital maturity levels, as evidenced by the negligible correlation between digital capabilities and ESG performance. The lack of significant interaction between AI adoption and digital maturity suggests that ESG benefits accrue even to firms with limited technological readiness, indicating potential decoupling between technological narratives and operational substance. State ownership does not amplify the AI-ESG relationship, contrary to expectations of stronger institutional pressures on state-owned enterprises. These patterns are consistent with AI functioning as a powerful legitimacy signal in evaluation environments that increasingly reward digital visibility over verified sustainability outcomes. Our study contributes to institutional decoupling theory by identifying emerging technologies as novel vehicles for symbolic compliance and highlights significant limitations in current ESG evaluation frameworks. The concept of ESG diversion illuminates how firms can strategically leverage AI announcements to enhance sustainability perceptions without corresponding operational transformation, particularly in weakly monitored emerging market contexts where rating systems privilege disclosure intensity and digital legibility.