Powering innovation through sustainability: exploring the effects of firm ESG performance on innovation volume and value

Jessica K. Sun and Daniel Zhang

Social Responsibility Journal, 2025, vol. 21, issue 7, 1503-1528

Abstract: Purpose - This paper examines the multifaceted relationship between firm ESG (environmental, social and governance) performance and innovation outcomes, incorporating a comprehensive set of metrics: innovation volume, technological impact intensity and financial capability. This study aims to explore how ESG performance influences these dimensions of innovation and to provide insights into the strategic value of ESG. Design/methodology/approach - Data were collected from multiple sources, including patent databases, financial datasets and ESG repositories, covering a wide range of industries. A series of robust empirical methods, including White robust regression with clustering, Newey–West and Driscoll–Kraay estimations, were used to ensure reliable and consistent results. Findings - The findings reveal the dual role of ESG performance in shaping firm innovation. ESG performance is positively associated with innovation volume and financial capability. However, a negative relationship between ESG performance and technological impact intensity highlights that ESG-driven innovations tend to be more specialized and firm-specific, limiting their broader technological influence. Originality/value - This paper offers valuable insights into the strategic potential of ESG as a driver of innovation and financial performance. The findings also offer practical guidelines for firms, highlighting the importance of aligning ESG initiatives with innovation strategies to achieve sustainable competitive advantage.

Keywords: ESG performance; Innovation volume; Technological impact intensity; Innovation financial capability; Sustainability; Value creation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:srjpps:srj-10-2024-0737

DOI: 10.1108/SRJ-10-2024-0737

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