Rethinking ESG‐Financial Performance Nexus Beyond Linearity: A Configurational Analysis

Melik Ertuğrul, Eylül Özdarak and Ayşenur Parlakkaya Diken

Business Strategy and the Environment, 2026, vol. 35, issue 5, 7621-7635

Abstract: Pressures to reconcile both sustainability commitments and financial targets exert inherent trade‐offs for firms, especially under financial constraints. The environmental, social, and governance performance (ESGP) and financial performance (FP) link is multifaceted and cannot be sufficiently captured by unidirectional and linear models. To explore how the overall ESG scores and individual ESG scores, alongside firm size, impact FP, we employ the Fuzzy‐Set Qualitative Comparative Analysis (fsQCA), a structured methodology designed to uncover conjunctural pathways and causal relationships between ESGP and FP. Based on a sample consisting of nonfinancial firms listed in Borsa Istanbul over 2019–2021, our outcomes reveal four distinct configurations that commonly demonstrate that each ESG pillar and firm size have conditional and asymmetric effects. We contribute a holistic approach for understanding ESGP–FP dynamics and offer strategic insights for several stakeholders to allocate resources more effectively.

Date: 2026
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