Unveiling the Relationship Between ESG and Growth of Unlisted Firms: Empirical Insights From Eastern Europe and Central Asia

Nosheen Rasool, Murugesh Arunachalam, Nirosha Hewa Wellalage and Vijay Kumar

Business Strategy and the Environment, 2025, vol. 34, issue 5, 5669-5686

Abstract: This study aims to uncover the empirical relationship between environmental, social and governance (ESG) factors and the growth of 19,956 unlisted firms in the East Europe and Central Asia (EECA) region. While the existing literature focuses on ESG performance in listed firms, there is a gap in understanding the growth dynamics of unlisted firms in EECA, which face challenges in implementing ESG initiatives due to resource constraints as the prime cause. The ESG index is constructed using principal component analysis (PCA), and growth is assessed through the variables of sales growth (SG), employment growth (EG) and asset growth (AG). To address endogeneity in the ESG–growth relationship, a two‐stage least squares (2SLS) estimator is employed, using instrumental variables. The results show a positive and significant relationship between ESG and growth indicators, emphasising the importance of sustainable practices for positive stakeholder relationships, enhanced reputation and long‐term growth. This research offers unique insights into the ESG–growth connection for unlisted firms in EECA, benefiting stakeholders by divulging employment opportunities in society and amplifying sales and asset growth.

Date: 2025
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https://doi.org/10.1002/bse.4257

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