ESG and Firm Performance: A Configuration Perspective

ABSTRACTFirms worldwide are strengthening environmental, social and governance (ESG) factors, indicating a bidirectional association between financial and non‐financial performance. Understanding the ambiguity around the predictors of the firm's ESG performance, we attempt to reappraise the ESG‐ firm performance (FP) linkage using the firms indexed in the NIFTY 100 ESG index spanning 2014 to 2023. Our findings highlight that market forces significantly influence firms' ESG performance; however, in emerging economies, the direct relationship between ESG and FP appears to be insignificant. Surprisingly, corporate governance positively moderates the ESG–FP linkage, strengthening this association. Among the four proxies for market forces, the Volatility Index (VIX) shows a significant impact, where higher market volatility is associated with improved ESG performance, and lower volatility corresponds to weaker ESG performance. Conversely, the World Uncertainty Index (WUI) exhibits a negative significance, suggesting that higher WUI adversely affects the ESG performance of firms in emerging economies, while lower WUI has a favourable effect. Green bonds have a positive and significant effect on overall ESG performance and on social and governance dimensions; however, their influence on environmental performance is not significant, raising concerns about potential greenwashing trends. Strikingly, our findings indicate that emerging economy firms do not consider systematic risk, suggesting that investors' risk perceptions remain unchanged regardless of whether firms over‐ or under‐invest in ESG initiatives. Our research calls for greater attention to policymakers by providing accurate reasonings for the ESG performance of emerging economy firms.

The ESG performance of energy-intensive firms is not only related to their long-term investment value and competitiveness but also directly affects national energy security, environmental protection and the sustainable development of the overall economy. This study conducts an empirical analysis based on data from Chinese A-share listed energy-intensive firms from 2014 to 2022 to examine the impact and mechanisms of supply chain digitalization on the ESG performance of energy-intensive firms. The result suggests that supply chain digitalization can improve the corporate ESG performance of energy-intensive firms. Specifically, supply chain digitalization promotes energy-intensive firms’ ESG performance by alleviating financing constraints and mitigating managerial myopia. The positive effect of supply chain digitalization on the ESG performance of energy-intensive firms is more significant in firms with lower supply chain concentration and regions with higher levels of digital inclusive finance development. Furthermore, supply chain digitalization has a promoting effect on energy-intensive firms’ environmental, social, and governance dimensions respectively. This study fills a research gap by directly establishing the link between supply chain digitalization and ESG performance in energy-intensive firms, a sector central to global sustainable development, and deepens the understanding of the underlying transmission mechanisms; it further enriches the research on the influencing factors and implementation paths of corporate ESG performance, expands the research boundary of the intersection between supply chain digitalization and ESG performance, and provides important practical implications for promoting the high-quality and sustainable development of energy-intensive firms under the background of modern supply chain construction.

The impact of market-based environmental regulation on corporate ESG performance: A quasi-natural experiment based on China's carbon emission trading scheme

This study investigates the impact of environmental, social, and governance (ESG) performance on firm financial performance in the context of Saudi Arabia, focusing specifically on publicly listed companies operating in high-pollution industries during the period from 2010 to 2023. Using the Two-Step System Generalized Method of Moments (GMM) to address endogeneity and firm-specific effects, three financial performance measures return on assets (ROA), return on equity (ROE), and Tobin’s Q are analyzed. The results indicate a significant positive relationship between ESG performance and all three financial indicators, suggesting that strong ESG performance enhances firm value by improving stakeholder trust, market valuation, and operational efficiency. The study supports stakeholder theory, signaling theory, and the resource-based view within the ESG-performance context of emerging economies. While focused on Saudi Arabia, it provides a foundation for broader regional studies as ESG disclosure standards evolve in the Gulf. The findings highlight the importance of ESG practices for corporate managers, investors, and policymakers, especially under Saudi Arabia's Vision 2030. Policymakers may consider strengthening ESG disclosure to promote transparency and sustainable development, aligning corporate performance with national sustainability goals. This research contributes to the literature on ESG and firm performance in resource-intensive, emerging markets, underscoring the value of sustainable practices in high-pollution industries.

This study investigates the relationships between sustainable human capital management practices, ESG performance, ESG disclosure, and firm financial performance. Using a sample of 387 S&P 500 firms from 2013 to 2023 and a panel data regression approach, we examine the impact of training expenditure, workforce diversity and inclusion, pay equity, and employee benefits on ESG performance. We also explore the association between ESG performance and ESG disclosure, the effect of ESG performance on financial performance, and the moderating role of ESG disclosure in the ESG-financial performance relationship. Our findings reveal that sustainable human capital management practices have a positive and significant impact on ESG performance, which in turn positively influences firm financial performance. We also find a positive relationship between ESG performance and ESG disclosure, and that ESG disclosure moderates the ESG-financial performance link, with the positive association being stronger for firms with higher levels of ESG disclosure. This study contributes to the literature by offering an integrated approach to examine the relationships between sustainable human capital management, ESG performance, ESG disclosure, and financial performance, providing novel insights into the drivers and outcomes of corporate sustainability in the context of human capital management. Doi: 10.28991/HEF-2024-05-02-08 Full Text: PDF

Do carbon emission trading schemes enhance enterprise green innovation efficiency? Evidence from China's listed firms

Purpose The construction industry is currently grappling with challenges related to inefficiency and declining productivity, primarily due to its reliance on labor- and resource-intensive development practices. This study aims to investigate the paths to enhancing Total Factor Productivity (TFP) within the construction sector from a configurational perspective. Design/methodology/approach This research, grounded in the configurational perspective, proposes a conceptual model that explains how the interplay between the institutional environment and organizational resources affects the TFP of the construction industry. This model is informed by the resource-based view and institutional theory. To test the proposed model, Necessary Condition Analysis (NCA) and Qualitative Comparative Analysis (QCA) were employed, utilizing case data from 30 provinces in China for the year 2019. Findings This study demonstrates that no single condition is necessary for achieving high levels of TFP in the construction industry. Instead, four distinct pathways can lead to elevated TFP, which are the institutional environment-driven pathway, the technological resource-institutional environment-driven pathway, the managerial resource-institutional environment-driven pathway, and the all-round development-driven pathway. Originality/value This research advances the theoretical understanding of TFP performance in the construction industry through a configurational perspective. Furthermore, it offers valuable insights for practitioners aiming to enhance TFP within the construction sector.

Does the disclosure of internal control material deficiency remediation information matter for ESG performance? Evidence from China

PurposeThis paper aims to investigate the impact of environmental, social and governance (ESG) performance on the firm performance of select Indian companies.Design/methodology/approachThe present paper is a cross-section study based on secondary data with a sample of 222 Indian firms. The ESG performance for Indian companies is based on the Credit Rating Information Services of India Limited (CRISIL) ESG score, and the financial data are extracted from the ACE Equity database. Both accounting- and market-based measures of firm performance are used. Ordinary least squares and simultaneous quantile regression models are used for empirical investigation.FindingsThe study reveals that Indian firms focus much more on governance and social parameters than environmental ones. The results indicate that ESG performance and its components are positively associated with firm performance. The results of quantile regression show that the impact of ESG is different at different locations of the conditional distribution of firm performance and the positive impact is more pronounced at upper quantiles.Originality/valueTo the best of the authors’ knowledge, this is the first study in India based on the CRISIL ESG score for analyzing the ESG and firm performance relationship. Furthermore, in the Indian context, a modest attempt is made to study the influence of ESG performance at different locations of the distribution of firm performance by using quantile regression.

Can digital transformation improve market and ESG performance? Evidence from Chinese SMEs

How to configure the supply chain to stimulate firm innovation performance?

<p><b>This thesis investigates the relationship between cross-country mandatory environmental, social and governance (ESG) regulations and firm-level outcomes, such as ESG performance, corporate finance, and investment, for both developing and developed countries. ESG performance is initially examined to determine whether mandatory ESG regulations affect it and to what extent. Second, the study investigates the impact of mandatory ESG on corporate finance and investment. Lastly, the study explores whether mandatory ESG regulations affect firm-level outcomes based on countries' governance and economic systems, and industries. The study uses a large sample of 69,010 firm-years across 73 countries, over the period 2005 – 2020 to address the foregoing issues.</b></p> <p>In addressing the impact of mandatory ESG regulations on ESG performance, the study employs a difference-in-differences (DiD) design. The DiD technique can isolate the effect of regulatory shocks to firm-level outcomes. According to the DiD analysis conducted, cross-country mandatory ESG improves firm-level ESG performance in developed countries, but not in developing countries. The study also concludes that mandatory ESG regulations have a positive impact only on ESG components in developed countries and have a more dominant impact on environmental (E) component. The findings are robust to a range of checks and test cases, including a triple DiD design set-up and propensity score-matched sample.</p> <p>The study employs an investment Euler equation framework and generalised method of moments (GMM) estimators to explore how mandatory ESG impacts corporate finance and investment. Euler frameworks account for the dynamic nature of investment, whereas GMMs account for endogenous dynamics in dynamic models. The study demonstrates that mandatory ESG increases corporate investment by increasing firms' access to external funds. The findings are robust to a battery of tests, including a triple DiD design set-up, propensity score-matched sample and the parallel trends assumption.</p> <p>Using an investment Euler equation framework and the GMM estimators, the study explores whether the impact of mandatory ESG on corporate finance and investment is dependent on a country's governance and economic system. When mandatory ESG is affected by country factors such as governance systems and economic well-being, the effect of mandatory ESG on investment via internal finance channel persists, according to the study. However, while consistent results are found in developed countries, inconsistent results are found in developing countries. According to the study, oil, gas, and mining firms are likely to respond effectively to mandatory ESG regulations because of increased scrutiny and pressure.</p> <p>Overall, the findings from the study imply that cross-country mandatory ESG has had a positive impact on corporate ESG performance, finance, and investment. For firms located in developed countries, these findings hold consistently, while for those located in developing countries, the opposite holds true. Also, the study reveals that firms in the oil, gas, and mining industries effectively respond to regulatory requirements. As a result, this study provides policy makers and accountants with an understanding of how mandatory ESG impacts firm ESG activities and performance, which is crucial for regulatory reforms.</p>

The configuration perspective in business management research is growing, but the lack of supportive research method slows it down. Since Fiss（2007）proposed to use the qualitative comparative analysis（QCA）to solve the problem of empirical research from the configuration perspective, the method has been widely used in management research overseas. Conversely, QCA is still in its initial stage with few achievements in China. Based on a systematic review of related literature adopting QCA in the management field at home and abroad, this paper summarizes that three major problems can be solved in management configuration research by QCA: exploring multiple routes resulting in the equifinality, dealing with complex interactions between antecedents and deepening & supplementing classification. Secondly, this paper summarizes QCA’s six advantages, including the low demand of quantity and sources of data, cause complexity, casual asymmetry, no need to deal with multilevel variables, the reduction in phenomenon complexity and complete case explanation. Facing the most questioned robustness in the application of QCA, this paper sums up a number of specific coping strategies. Finally, supported by the latest development of QCA, this paper proposes a three-dimensional research framework consisting of digging the past research, and cultivating the future research and time-series research.

Interest in firms’ ESG performance is longstanding and growing. However, understanding remains fragmented across firms at different stages of their life cycle. This study investigates the role of life cycle stages in the relationship between ESG and firm performance in the Chinese context. Using a sample of 26,412 firm–year observations of firms listed in China from 2011 to 2021, the results provide evidence that, although ESG has a significant positive effect on firm performance, the effect is contingent on the stages of the firm’s life cycle. The association between ESG and firm performance is more pronounced for firms in the growth and mature phases. We also find that this effect is enhanced for state-owned growth firms localized in regions with a lower marketization degree. Furthermore, the findings also extend the distinct mediation roles of institutional investors and the agency cost of free cash flow in the nexus of ESG and firm performance. This paper provides direct empirical evidence for a better understanding of firm’s behavior across different life cycle stages, as well as helps to achieve a win–win situation of firm performance and social value.

Resource-based theory argues that resources must be valuable, rare, inimitable, and lack substitutes to confer competitive advantage. Inimitability is a lynchpin of resource-based theory and central to understanding the sustainability of competitive advantage. Although scholars recognize a positive relationship between causal ambiguity and inimitability, the relationship among critical resources called competencies, causal ambiguity, and firm performance remains an unresolved conundrum. One perspective suggests that causal ambiguity regarding competencies and performance is necessary among internal and external managers for sustainable competitive advantage because it severely limits imitation. Causal ambiguity, therefore, enhances firm performance. Another view holds that causal ambiguity places a constraint on the transfer and leveraging of these competencies within a firm. In this case, causal ambiguity may adversely influence firm performance. This paper takes a resource-based view to develop and test hypotheses that relate managers' perceptions of causal ambiguity to their firm's performance. The hypotheses examine relationships between firm performance and (1) causal ambiguity regarding the link between competencies and competitive advantage, and (2) causally ambiguous characteristics of competencies. Research involving 224 executives in 17 organizations provides valuable insights into the relationships between causal ambiguity and firm performance. A model is then developed based on these findings. Particular consideration is given to the differing ways top and middle managers in a firm may experience causal ambiguity and to how these differences may be understood and managed. Copyright © 2001 John Wiley & Sons, Ltd.