IDEAS home Printed from https://ideas.repec.org/a/bla/bstrat/v33y2024i2p546-574.html
   My bibliography  Save this article

Can innovation affect the relationship between Environmental, Social, and Governance issues and financial performance? Empirical evidence from the STOXX200 index

Author

Listed:
  • Federica Doni
  • Marco Fiameni

Abstract

Innovation represents one of the most important drivers in the business context. Drawing upon the research on corporate social responsibility (CSR), shared value, and innovation, this paper aims to analyze the relationship between Environmental, Social, and Governance (ESG, a form of CSR) sustainability policies and corporate financial performance (CFP) by investigating the mediating role of Innovation (i.e., investment in research and development, R&D). Our sample comprises 148 European companies belonging to the Euro Stoxx index in the period 2009–2014. For high‐innovation companies (HICs), we find positive relationships between some Social (S) issues and CFP and weaker linkages between Environmental (E) indicators and CFP. In contrast, Governance (G) issues (i.e., issues related to board structure and board function) negatively influence CFP. In contrast, for medium‐innovation companies (MICs), these relationships are absent and low‐innovation companies (LICs) show negative relationships. Adopting reporting frameworks or guidelines affects CFP only in HIC. We introduce an original interpretative model, which identifies innovation (R&D) as the main driver in corporate sustainability, particularly in light of Social issues related to the production of a good or service. In terms of managerial implications, we identify three key factors for effectively embedding ESG in organizations' policies: investment in product innovation, compliance with environmental regulations, and corporate choices on brands and channels of external communication.

Suggested Citation

  • Federica Doni & Marco Fiameni, 2024. "Can innovation affect the relationship between Environmental, Social, and Governance issues and financial performance? Empirical evidence from the STOXX200 index," Business Strategy and the Environment, Wiley Blackwell, vol. 33(2), pages 546-574, February.
    • Handle: RePEc:bla:bstrat:v:33:y:2024:i:2:p:546-574
    DOI: 10.1002/bse.3500
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/bse.3500
    Download Restriction: no
    File URL: https://libkey.io/10.1002/bse.3500?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Stefan Zagelmeyer & Rudolf R. Sinkovics, . "MNEs, human rights and the SDGs – the moderating role of business and human rights governance," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    2. Viscusi, W Kip & Moore, Michael J, 1987. "Workers' Compensation: Wage Effects, Benefit Inadequacies, and the Value of Health Losses," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 249-261, May.
    3. Clyde Eiríkur Hull & Sandra Rothenberg, 2008. "Firm performance: the interactions of corporate social performance with innovation and industry differentiation," Strategic Management Journal, Wiley Blackwell, vol. 29(7), pages 781-789, July.
    4. Fagerberg, Jan, 2018. "Mobilizing innovation for sustainability transitions: A comment on transformative innovation policy," Research Policy, Elsevier, vol. 47(9), pages 1568-1576.
    5. Francesco Bogliacino, 2014. "Innovation and employment: A firm level analysis with European R&D Scoreboard data," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 15(2), pages 141-154.
    6. Johannes W. F. C. van Lieshout & Andre H. J. Nijhof & Gijs J. W. Naarding & Robert J. Blomme, 2021. "Connecting strategic orientation, innovation strategy, and corporate sustainability: A model for sustainable development through stakeholder engagement," Business Strategy and the Environment, Wiley Blackwell, vol. 30(8), pages 4068-4080, December.
    7. Shameek Konar & Mark A. Cohen, 2001. "Does The Market Value Environmental Performance?," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 281-289, May.
    8. Pfajfar, Gregor & Shoham, Aviv & Małecka, Agnieszka & Zalaznik, Maja, 2022. "Value of corporate social responsibility for multiple stakeholders and social impact – Relationship marketing perspective," Journal of Business Research, Elsevier, vol. 143(C), pages 46-61.
    9. Jacopo Carmassi & Daniel Gros & Stefano Micossi, 2009. "The Global Financial Crisis: Causes and Cures," Journal of Common Market Studies, Wiley Blackwell, vol. 47, pages 977-996, November.
    10. Emma Avetisyan & Kai Hockerts, 2017. "The Consolidation of the ESG Rating Industry as an Enactment of Institutional Retrogression," Business Strategy and the Environment, Wiley Blackwell, vol. 26(3), pages 316-330, March.
    11. Andrew Knauer & George Serafeim, 2014. "Attracting Long-Term Investors Through Integrated Thinking and Reporting: A Clinical Study of a Biopharmaceutical Company," Journal of Applied Corporate Finance, Morgan Stanley, vol. 26(2), pages 57-64, June.
    12. Zahra Hashemi Oskouei, 2019. "Linking social and economic responsibilities and financial performance: The assisting role of innovation for an oil engineering and development company," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(3), pages 1345-1354, July.
    13. Graham, Stephanie & Potter, Antony, 2015. "Environmental operations management and its links with proactivity and performance: A study of the UK food industry," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 146-159.
    14. Dong, Liang & Liang, Hanwei & Zhang, Liguo & Liu, Zhaowen & Gao, Zhiqiu & Hu, Mingming, 2017. "Highlighting regional eco-industrial development: Life cycle benefits of an urban industrial symbiosis and implications in China," Ecological Modelling, Elsevier, vol. 361(C), pages 164-176.
    15. Jennifer Martínez-Ferrero & Shantanu Banerjee & Isabel María García-Sánchez, 2016. "Corporate Social Responsibility as a Strategic Shield Against Costs of Earnings Management Practices," Journal of Business Ethics, Springer, vol. 133(2), pages 305-324, January.
    16. Nazim Hussain & Ugo Rigoni & Elisa Cavezzali, 2018. "Does it pay to be sustainable? Looking inside the black box of the relationship between sustainability performance and financial performance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 25(6), pages 1198-1211, November.
    17. John Holland, 2011. "A conceptual framework for changes in fund management and accountability relative to ESG issues," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 1(2), pages 159-177, April.
    18. Rennings, Klaus & Ziegler, Andreas & Ankele, Kathrin & Hoffmann, Esther, 2006. "The influence of different characteristics of the EU environmental management and auditing scheme on technical environmental innovations and economic performance," Ecological Economics, Elsevier, vol. 57(1), pages 45-59, April.
    19. Emmanuel Lawal & Gökan May & Bojan Stahl, 2017. "The Significance of Corporate Social Disclosure for High‐Tech Manufacturing Companies: Focus on Employee and Community Aspects of Sustainable Development," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 24(4), pages 295-311, July.
    20. David Talbot & Nicolas Raineri & Alain Daou, 2021. "Implementation of sustainability management tools: The contribution of awareness, external pressures, and stakeholder consultation," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(1), pages 71-81, January.
    21. Roger L. Burritt & Stefan Schaltegger, 2010. "Sustainability accounting and reporting: fad or trend?," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 23(7), pages 829-846, September.
    22. Dermot Hodson & Lucia Quaglia, 2009. "European Perspectives on the Global Financial Crisis: Introduction," Journal of Common Market Studies, Wiley Blackwell, vol. 47, pages 939-953, November.
    23. Sprinkle, Geoffrey B. & Maines, Laureen A., 2010. "The benefits and costs of corporate social responsibility," Business Horizons, Elsevier, vol. 53(5), pages 445-453, September.
    24. Caterina De Lucia & Pasquale Pazienza & Mark Bartlett, 2020. "Does Good ESG Lead to Better Financial Performances by Firms? Machine Learning and Logistic Regression Models of Public Enterprises in Europe," Sustainability, MDPI, vol. 12(13), pages 1-29, July.
    25. Borko Mihajlović, 2020. "The Role of Consumers in the Achievement of Corporate Sustainability through the Reduction of Unfair Commercial Practices," Sustainability, MDPI, vol. 12(3), pages 1-20, January.
    26. Periyasami Anbarasan & Sushil, 2018. "Stakeholder Engagement in Sustainable Enterprise: Evolving a Conceptual Framework, and a Case Study of ITC," Business Strategy and the Environment, Wiley Blackwell, vol. 27(3), pages 282-299, March.
    27. Erlend Kvaal & Christopher Nobes, 2010. "International differences in IFRS policy choice: A research note," Accounting and Business Research, Taylor & Francis Journals, vol. 40(2), pages 173-187.
    28. Banerjee, Subhabrata Bobby, 2010. "Governing the Global Corporation: A Critical Perspective," Business Ethics Quarterly, Cambridge University Press, vol. 20(2), pages 265-274, April.
    29. Daniel Alonso‐Martínez & Nuria González‐Álvarez & Mariano Nieto, 2019. "The influence of financial performance on corporate social innovation," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(4), pages 859-871, July.
    30. Atle Blomgren, 2011. "Does corporate social responsibility influence profit margins? a case study of executive perceptions," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 18(5), pages 263-274, September.
    31. Chaokai Xue & Xinghua Dang & Beibei Shi & Jing Gu, 2019. "Information Sharing and Investment Performance in the Venture Capital Network Community: An Empirical Study of Environmental-Social-Governance Start-Ups," IJERPH, MDPI, vol. 16(6), pages 1-18, March.
    32. Mohammad Najjar & Michael H. Small & Mahmoud M. Yasin, 2020. "Social Sustainability Strategy across the Supply Chain: A Conceptual Approach from the Organisational Perspective," Sustainability, MDPI, vol. 12(24), pages 1-16, December.
    33. Rupert J. Baumgartner & Daniela Ebner, 2010. "Corporate sustainability strategies: sustainability profiles and maturity levels," Sustainable Development, John Wiley & Sons, Ltd., vol. 18(2), pages 76-89.
    34. Al-Tuwaijri, Sulaiman A. & Christensen, Theodore E. & Hughes, K. II, 2004. "The relations among environmental disclosure, environmental performance, and economic performance: a simultaneous equations approach," Accounting, Organizations and Society, Elsevier, vol. 29(5-6), pages 447-471.
    35. Junic Kim, 2016. "The platform business model and business ecosystem: quality management and revenue structures," European Planning Studies, Taylor & Francis Journals, vol. 24(12), pages 2113-2132, December.
    36. Dermot Hodson & Lucia Quaglia, 2009. "European Perspectives on the Global Financial Crisis: Introduction," Journal of Common Market Studies, Wiley Blackwell, vol. 47(5), pages 939-953, November.
    37. Belen Fernandez-Feijoo & Silvia Romero & Silvia Ruiz, 2014. "Effect of Stakeholders’ Pressure on Transparency of Sustainability Reports within the GRI Framework," Journal of Business Ethics, Springer, vol. 122(1), pages 53-63, June.
    38. Cegarra-Navarro, Juan-Gabriel & Reverte, Carmelo & Gómez-Melero, Eduardo & Wensley, Anthony K.P., 2016. "Linking social and economic responsibilities with financial performance: The role of innovation," European Management Journal, Elsevier, vol. 34(5), pages 530-539.
    39. Ángela Triguero & María C. Cuerva & Carlos Álvarez-Aledo, 2017. "Environmental Innovation and Employment: Drivers and Synergies," Sustainability, MDPI, vol. 9(11), pages 1-22, November.
    40. Jacopo Carmassi & Daniel Gros & Stefano Micossi, 2009. "The Global Financial Crisis: Causes and Cures," Journal of Common Market Studies, Wiley Blackwell, vol. 47(5), pages 977-996, November.
    41. Silvia Carnini Pulino & Mirella Ciaburri & Barbara Sveva Magnanelli & Luigi Nasta, 2022. "Does ESG Disclosure Influence Firm Performance?," Sustainability, MDPI, vol. 14(13), pages 1-18, June.
    42. Timo Busch & Maximilian Schnippering, 2022. "Corporate social and financial performance: Revisiting the role of innovation," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(3), pages 635-645, May.
    43. Ganesh Iyer & David A. Soberman, 2016. "Social Responsibility and Product Innovation," Marketing Science, INFORMS, vol. 35(5), pages 727-742, September.
    44. Winston Jerónimo Silvestre & Ana Fonseca & Sandra Naomi Morioka, 2022. "Strategic sustainability integration: Merging management tools to support business model decisions," Business Strategy and the Environment, Wiley Blackwell, vol. 31(5), pages 2052-2067, July.
    45. Yifan Xie & Yingkai Fang & Dengjun Zhang, 2022. "How Environmental Performance Affects Financial Performance in the Food Industry: A Global Outlook," Sustainability, MDPI, vol. 14(4), pages 1-18, February.
    46. Sumas Wongsnuopparat & Wei Chunyang, 2021. "Corporate Sustainability: Study of Factors that Affect Corporate Towards Organizational Sustainability in Today Fast-Changing World," Journal of Management and Sustainability, Canadian Center of Science and Education, vol. 11(2), pages 1-56, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Massimiliano Cerciello & Francesco Busato & Simone Taddeo, 2023. "The effect of sustainable business practices on profitability. Accounting for strategic disclosure," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(2), pages 802-819, March.
    2. Alena Kocmanová & Marie Pavláková Dočekalová & Tomáš Meluzín & Stanislav Škapa, 2020. "Sustainable Investing Model for Decision Makers (Based On Research of Manufacturing Industry in the Czech Republic)," Sustainability, MDPI, vol. 12(20), pages 1-27, October.
    3. V. Veeravel & E. K. S. Sadharma & Bandi Kamaiah, 2024. "Do ESG disclosures lead to superior firm performance? A method of moments panel quantile regression approach," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 741-754, January.
    4. Linda Kusumaning Wedari & Amir Moradi‐Motlagh & Christine Jubb, 2023. "The moderating effect of innovation on the relationship between environmental and financial performance: Evidence from high emitters in Australia," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 654-672, January.
    5. Nazim Hussain, 2015. "Impact of Sustainability Performance on Financial Performance: An Empirical Study of Global Fortune (N100) Firms," Working Papers 1, Department of Management, Università Ca' Foscari Venezia.
    6. Tsalis, Thomas A. & Nikolaou, Ioannis E. & Konstantakopoulou, Fotini & Zhang, Ying & Evangelinos, Konstantinos I., 2020. "Evaluating the corporate environmental profile by analyzing corporate social responsibility reports," Economic Analysis and Policy, Elsevier, vol. 66(C), pages 63-75.
    7. Rashedul Hasan & Mohammad Dulal Miah & M. Kabir Hassan, 2022. "The nexus between environmental and financial performance: Evidence from gulf cooperative council banks," Business Strategy and the Environment, Wiley Blackwell, vol. 31(7), pages 2882-2907, November.
    8. Patrícia Tourais & Nuno Videira, 2024. "Sustainability transition strategies in a business context: A co‐creation process in the Portuguese hospitality sector," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 600-628, January.
    9. Wagner, Marcus, 2010. "The role of corporate sustainability performance for economic performance: A firm-level analysis of moderation effects," Ecological Economics, Elsevier, vol. 69(7), pages 1553-1560, May.
    10. Josep Garcia‐Blandon & David Castillo‐Merino & Nour Chams, 2020. "Sustainable development: The stock market's view of environmental policy," Business Strategy and the Environment, Wiley Blackwell, vol. 29(8), pages 3273-3285, December.
    11. Reif, Christiane & Rexhäuser, Sascha, 2015. "Good enough! Are socially responsible companies the more successful environmental innovators?," ZEW Discussion Papers 15-018, ZEW - Leibniz Centre for European Economic Research.
    12. Franck Brulhart & Sandrine Gherra & Bertrand V. Quelin, 2019. "Do Stakeholder Orientation and Environmental Proactivity Impact Firm Profitability?," Journal of Business Ethics, Springer, vol. 158(1), pages 25-46, August.
    13. Iain Begg, 2009. "Regulation and Supervision of Financial Intermediaries in the EU: The Aftermath of the Financial Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 47(5), pages 1107-1128, November.
    14. Lu Zhang & Yuan George Shan & Millicent Chang, 2021. "Can CSR Disclosure Protect Firm Reputation During Financial Restatements?," Journal of Business Ethics, Springer, vol. 173(1), pages 157-184, September.
    15. Rayenda Khresna Brahmana & Maria Kontesa, 2021. "Does clean technology weaken the environmental impact on the financial performance? Insight from global oil and gas companies," Business Strategy and the Environment, Wiley Blackwell, vol. 30(7), pages 3411-3423, November.
    16. Riccardo Torelli & Federica Balluchi & Katia Furlotti, 2020. "The materiality assessment and stakeholder engagement: A content analysis of sustainability reports," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(2), pages 470-484, March.
    17. Bert Scholtens & Feng‐Ching Kang, 2013. "Corporate Social Responsibility and Earnings Management: Evidence from Asian Economies," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 20(2), pages 95-112, March.
    18. Eng, Li Li & Fikru, Mahelet G. & Vichitsarawong, Thanyaluk, 2021. "The impact of toxic chemical releases and their management on financial performance," Advances in accounting, Elsevier, vol. 53(C).
    19. Borce Trenovski & Biljana Tashevska & Suzana Makreshanska, 2015. "The Global Economic Crisis - What Should Not Be Forgotten," Journal Articles, Center For Economic Analyses, pages 99-112, June.
    20. Hidemichi Fujii & Kazuyuki Iwata & Shinji Kaneko & Shunsuke Managi, 2013. "Corporate Environmental and Economic Performance of Japanese Manufacturing Firms: Empirical Study for Sustainable Development," Business Strategy and the Environment, Wiley Blackwell, vol. 22(3), pages 187-201, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:bstrat:v:33:y:2024:i:2:p:546-574. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-0836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.