Exploring the Moderating Role of Country Governance in the Relationship Between Sustainable Performance and Firm Performance: Empirical Evidence From an Emerging Market
Aug 2026· Business Strategy & Development· Vol 9· 0 citations· 84 references
Abstract
Sustainable development is increasingly reshaping corporate strategies, particularly in emerging markets such as India, where environmental, social, and governance (ESG) integration has become pivotal for long‐term value creation. This study examines the impact of ESG performance on firm outcomes for Nifty 500 firms over 2014–2024, considering both aggregated and disaggregated ESG dimensions, while assessing the influence of country‐level governance mechanisms. Using panel regression analysis, the findings reveal that robust ESG practices significantly enhance financial, operational, and market performance, underscoring their strategic relevance. At the disaggregated level, social (SOC) and governance (GOV) performance consistently improve profitability, efficiency, and market valuation, whereas environmental (ENV) initiatives exhibit short‐term negative effects, likely due to compliance and investment costs. Further, country governance indicators, including voice and accountability (VAA), political stability and absence of violence (PSV), government effectiveness (GVE), regulatory quality (REQ), rule of law (ROL), and control of corruption (COC), differentially shape the ESG–performance link. While VAA, PSV, REQ, and GVE enhance ESG's impact, ROL and COC constrain immediate gains, highlighting the role of governance quality in aligning ESG initiatives with firm‐level outcomes. The study provides critical insights for regulators, policymakers, investors, and corporate managers, emphasizing governance as a key enabler of sustainable growth in an emerging market.
This study investigates how Environmental, Social, and Governance (ESG) performance related to corporate performance among firms listed on Thailand Sustainability Investment (THSI) index from 2018 to 2022, that are part of the Stock Exchange of Thailand (SET). This research utilizes agency theory and stakeholder theory to assess the influence of ESG aspects on company outcomes through Partial Least Squares Structural Equation Modeling (PLS-SEM), emphasizing direct effects and the moderating role of governance. Findings reveal that Environmental, Social and Governance performance impacts firm performance in diverging directions. Environmental performance has a significant negative relationship with Return on Assets (ROA), reflecting the financial impact associated with environmental activities during the investigated period, whereas social performance shows substantial positive relations with ROA. Regarding governance, results show a positive direct effect on ROA, showing enhanced operational efficiency, on other hand, results indicate a negative influence on Tobin’s Q, indicating potential market concerns over monitoring costs. Crucially, significantly strengthening the positive influence of social performance on ROA, governance serves as a selective moderating mechanism. This implies that by reducing agency conflicts, strong internal control ensures social investments are efficiently translated into accounting returns. In contrast, the environmental pillar shows no moderating effect. These results emphasize the importance of dissection ESG indicators. Investors and government bodies should prioritize dimension-specific evaluations above overall rating in order to better align sustainability activities with financial performance.
Pakkamon Charoensuk, Chaimongkol Pholkaew, Kusuma Dampitakse· Asian Economic and Financial...· 0 citations
This paper focuses on the role of embedded corporate governance in the integration of environmental, social and governance (ESG) and firm profitability in emerging markets. The study adopts an explanatory sequential mixed-methods design comprising panel regression analysis of governance and financial indicators for the period 2014-2024, and qualitative analysis of ESG disclosures based on ISO IWA 48:2024, based on evidence from the listed agri-food sector in Zambia. Baseline governance models showed weak relationships with profitability across the panel estimators. Although governance did not demonstrate a statistically significant direct association with short-term accounting profitability, the qualitative findings consistently showed that governance strengthens accountability, stakeholder trust, organisational resilience and ESG integration. These findings support an embedded governance perspective in which governance contributes to sustainable competitiveness primarily through organisational capability rather than immediate financial gains. The results have managerial and policy implications for improving sustainable competitiveness in resource constrained and institutionally fragile settings.
Mubanga Lackson Chipimo, John Bwalya, Joseph Katongo Kanyanga· Symphonya Emerging Issues in...· 0 citations
This study examines whether environmental, social, and governance (ESG) practices enhance corporate profitability and firm value by reviewing empirical evidence from previous studies. Using a systematic literature review guided by a PRISMA approach, peer-reviewed articles published between 2010 and 2025 and indexed in Scopus and Web of Science were analyzed. The findings indicate that firms adopting ESG practices generally achieve stronger financial performance and higher market valuation, although the strength and direction of the relationship vary across contexts. Five key factors influence these outcomes: the credibility of ESG disclosure, the financial materiality of ESG issues within the industry, governance quality, environmental exposure, and the institutional maturity of the market. The review also highlights that inconsistencies among ESG rating agencies contribute to measurement differences, leading to mixed empirical findings. Drawing on stakeholder and legitimacy theories, the study suggests that effective ESG implementation reduces information asymmetry, lowers financing costs, strengthens corporate reputation, and increases investor confidence. An integrative framework is proposed to explain the relationship between ESG implementation and firm value while identifying future research opportunities, particularly in emerging economies such as Indonesia, where sustainable finance regulations continue to develop.
Agung Nugroho, Andini Nurwulandari, E. Hasanudin· International Journal of Eco...· 0 citations
Global supply chains face increasing sustainability‐related risks, yet evidence regarding the financial benefits of environmental, social, and governance (ESG) initiatives remains mixed. We argue that these inconsistencies arise because ESG dimensions operate through different value‐creation mechanisms and because existing research pays insufficient attention to the organizational processes through which sustainability becomes economically consequential. Using Bloomberg ESG and financial data for 1830 firms across 80 countries, combined with country‐level political and institutional indicators, we examine whether operational efficiency mediates the relationship between ESG performance and profitability. Results show that environmental and social performance are positively associated with profitability, whereas governance performance exhibits weaker and less consistent effects. Operational efficiency partially mediates the environmental–performance relationship and serves as a significant pathway through which social performance contributes to financial outcomes. In contrast, governance performance demonstrates neither significant mediation nor robust direct effects. Although political‐institutional conditions are associated with firm performance, they exert limited influence on the operational pathways linking sustainability activities to profitability. These findings demonstrate that ESG dimensions create value through distinct mechanisms rather than through a uniform sustainability effect and identify operational efficiency as a central mechanism through which sustainability initiatives become financially material. The study contributes a process‐oriented explanation of how firms translate sustainability commitments into organizational resilience and sustained financial performance.
S. Bhatnagar, R. Kumar· Sustainable Development· 0 citations
The integration of environmental, social, and governance (ESG) factors into corporate business strategy has become progressively important, particularly for firms operating in high‐materiality industries where nonfinancial risks are more pronounced. This study examines the association between ESG performance and firm performance among European listed companies within high‐materiality industries during the period 2014–2024. Using panel data collected from established financial and sustainability databases, the analysis studies the influence of aggregate ESG scores and their individual components on key firm performance indicators, including return on assets (ROA), return on equity (ROE), and Tobin's
Q
. The empirical results reveal a predominantly positive association between ESG integration and firm performance, with stronger and more statistically significant effects observed for market‐based and operational performance measures. In particular, governance‐related ESG dimensions exhibit the most consistent positive influence, whereas environmental initiatives may impose short‐term financial constraints due to higher implementation costs. The findings highlight the importance of strategically embedding ESG considerations into corporate managerial procedures, especially in sectors characterized by high material exposure. This research contributes to the existing literature by emphasizing the role of industry‐specific materiality in shaping the ESG–performance relationship within the European context.
M. Fülöp, Javier Cifuentes‐Faura, D. Topor· Business Strategy and the En...· 0 citations
Environmental, Social, and Governance (ESG) disclosure has become increasingly important for
enhancing corporate transparency and sustainable value creation. However, empirical evidence
on its effect on financial performance remains inconclusive, particularly in Nigeria, where
previous studies have largely relied on aggregate ESG measures and provided limited evidence
for the consumer goods sector. This study examined the effect of environmental, social, and
governance disclosures on the Return on Equity (ROE) of selected listed consumer goods firms in
Nigeria. An ex post facto research design was adopted using secondary data from the annual
reports of five purposively selected firms covering 2015–2025. ESG disclosure indices were
developed using the Global Reporting Initiative framework, and panel regression techniques were
employed for analysis. The findings revealed that environmental, social, and governance
disclosures each had a positive and statistically significant effect on ROE, with governance
disclosure exerting the strongest influence. Firm size positively affected financial performance,
while leverage had a significant negative effect. The study contributes by providing disaggregated,
sector-specific evidence on the ESG–financial performance nexus in Nigeria. The findings suggest
that firms should strengthen ESG reporting, while regulators should enhance ESG disclosure
standards to improve corporate transparency, investor confidence, and sustainable financial
performance.
E. A. Ukpe· INTERNATIONAL JOURNAL OF SOC...· 0 citations