<p>Research shows that firms often decouple their Environmental, Social, and Governance (ESG) communications from their actual ESG actions to gain legitimacy and competitive advantage, often at the expense of their long-term value creation. Although ESG-linked executive compensation (ESG Contracting) is increasingly promoted as a governance mechanism to align managerial incentives with ESG goals, little is known about whether and under what conditions it effectively curbs ESG decoupling. Drawing on stakeholder agency theory, which conceptualizes ESG Contracting as a governance mechanism, and managerial power theory, which emphasizes how executive power can undermine such governance mechanisms, we examine how ESG contracting influences ESG decoupling and the moderating role of CEO power. Using a sample of listed U.S. firms from 2013 to 2023, we find that ESG Contracting is associated with significantly lower ESG decoupling. However, this relationship is weakened when CEOs possess greater power, suggesting managerial discretion can undermine the effectiveness of ESG-oriented incentive schemes. Our study contributes to the corporate governance and disclosure literature by highlighting how power asymmetries can dilute governance mechanisms and foster symbolic ESG compliance, with significant implications for boards, regulators, and policymakers by underscoring that the effectiveness of the ESG Contracting depends not only on mere adoption but also on governance structures that can constrain executive power.</p>