Corporate ESG performance and intellectual capital: International evidence

Abstract

This study aims to empirically investigate the relationship between a firm's overall (individual) ESG performance and intellectual capital based on data from globally publicly listed firms across 30 countries from 2000 to 2019. We also explore how the Altman Z-score (the total number of patents and trademarks at the national level) moderates the association between firm’ ESG performance and intellectual capital. We use the Panel FGLS (Feasible Generalized Least Squares) approach to examine whether firms with better ESG performance experience a boost in intellectual capital performance. We present two key findings: (1) ESG performance, with its three main pillars, has a significantly strong positive impact on intellectual capital. This suggests that firms should engage in ESG activities as part of their strategy and, to remain ahead of their competitors, must innovate in ways that prevent rivals from copying their business approach. (2) The greater the number of patents and trademarks at the national level and the higher the Altman Z-score, the more significantly positive is the relationship between ESG performance and intellectual capital. The findings of this study contribute to the scant literature on ESG performance and intellectual capital. Firms with strong ESG performance and outstanding achievements in sustainable development have a competitive advantage; therefore, information about firms' strategies for incorporating, generating, transferring and applying intellectual capital can provide stakeholders with a long-term view of the company's future.