•  
  •  
 

Abstract

Background: Global sustainability challenges and EU regulations, such as Directive 2014/95/EU, drive firms to adopt ESG practices, yet their financial impact remains debated. ESG initiatives are increasingly important for transparency, competitiveness, and alignment with the UN Sustainable Development Goals. In this context, green innovation emerges as a potential pathway to transform ESG commitments into tangible business value. Method: This study employed a regression model using the SPSS PROCESS macro (Model 4) with bootstrapping (95% CI) to analyze direct and indirect effects of ESG, green innovation, and financial performance in European energy, utilities, materials, and industrial sectors. Findings: The results indicate that ESG does not significantly impact financial performance. While ESG dimensions positively influence green innovation, green innovation does not mediate the relationship between ESG performance and financial performance. Conclusion: Although ESG can stimulate green innovation, such innovation does not translate into improved financial outcomes. Companies should optimize their green innovation strategies and consider other influencing factors to ensure sustainability benefits contribute more effectively to financial performance. Novelty/Originality of this article: This study investigates green innovation as a mediating mechanism linking ESG performance to corporate outcomes across multiple European countries, advancing the literature beyond studies that assess only direct ESG effects.

References

Abdullah, N. Zhu, and M. A. Hashmi. 2024. Exploring the Influence of Green Innovation, ESG Performance, and Corporate Reputation on Stock Market Performance: A Mediated Moderation Perspective. Environment, Development and Sustainability. https://doi.org/10.1007/S10668-024-05840-7

Aguilera, R. V., D. E. Rupp, C. A. Williams, and J. Ganapathi. 2007. Putting the S Back in Corporate Social Responsibility: A Multilevel Theory of Social Change in Organizations. Academy of Management Review, 32 (3), 836–863. https://doi.org/10.5465/amr.2007.25275678

Aguinis, H., And A. Glavas. 2012. What We Know and Don’t Know about Corporate Social Responsibility: A Review and Research Agenda. Journal of Management, 38 (4), 932–968. https://doi.org/10.1177/0149206311436079

Agustin, H., And Basuki. 2025. The Mediating Role of Green Innovation in the Relationship between Environmental Orientation and Firm Performance: Evidence from Indonesia. International Journal of Innovative Research and Scientific Studies, 8 (1), Article 1. https://doi.org/10.53894/ijirss.v8i1.4412

Agyabeng-Mensah, Y., E. Afum, And E. Ahenkorah. 2020. Exploring Financial Performance and Green Logistics Management Practices: Examining the Mediating Influences of Market, Environmental and Social Performances. Journal of Cleaner Production, 258, 120613. https://doi.org/10.1016/j.jclepro.2020.120613

Ahmad, H. I., And K. Aljifri. 2024. Corporate Sustainability and Value. Journal of Asia Business Studies, ahead-of-print (ahead-of-print). https://doi.org/10.1108/JABS-05-2024-0281

Ahmad, N., A. Mobarek, And N. N. Roni. 2021. Revisiting the Impact of ESG on Financial Performance of FTSE350 UK Firms: Static and Dynamic Panel Data Analysis. Cogent Business & Management. https://www.tandfonline.com/doi/abs/10.1080/23311975.2021.1900500

Al Amosh, H., S. F. A. Khatib, A. Alkurdi, And A. H. Bazhair. 2022. Capital Structure Decisions and Environmental, Social and Governance Performance: Insights from Jordan. Journal of Financial Reporting and Accounting, 22 (4), 972–989. https://doi.org/10.1108/JFRA-12-2021-0453

Albertini, E. 2013. Does Environmental Management Improve Financial Performance? A Meta-Analytical Review. Organization & Environment, 26 (4), 431–457. https://doi.org/10.1177/1086026613510301

Al-Tuwaijri, S. A., T. E. Christensen, And K. E. Hughes. 2004. The Relations Among Environmental Disclosure, Environmental Performance, And Economic Performance: A Simultaneous Equations Approach. Accounting, Organizations and Society, 29 (5), 447–471. https://doi.org/10.1016/S0361-3682(03)00032-1

Asni, N., And D. Agustia. 2022. Does Corporate Governance Induce Green Innovation? An Emerging Market Evidence. Corporate Governance: The International Journal of Business in Society, 22 (7), 1375–1389. https://doi.org/10.1108/CG-10-2021-0389

Barney, J. 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17 (1), 99–120. https://doi.org/10.1177/014920639101700108

Baron, R. M., and D. A. Kenny. 1986. The Moderator-Mediator Variable Distinction in Social Psychological Research: Conceptual, Strategic, and Statistical Considerations, 51 (6), 1173–1182.

Chan, M. C., J. Watson, and D. Woodliff. 2014. Corporate Governance Quality and CSR Disclosures. Journal of Business Ethics, 125 (1), Article 1. https://doi.org/10.1007/s10551-013-1887-8

Chang, C.-H. 2011. The Influence of Corporate Environmental Ethics on Competitive Advantage: The Mediation Role of Green Innovation. Journal of Business Ethics, 104 (3), 361–370. https://doi.org/10.1007/s10551-011-0914-x

Chen, S., Y. Song, and P. Gao. 2023. Environmental, Social, and Governance (ESG) Performance and Financial Outcomes: Analyzing the Impact of ESG on Financial Performance. Journal of Environmental Management, 345, 118829. https://doi.org/10.1016/j.jenvman.2023.118829

Chen, Y. 2011. Green Organizational Identity: Sources and Consequence. Management Decision, 49 (3), 384–404. https://doi.org/10.1108/00251741111120761

Chen, Y.-S., S.-B. Lai, and C.-T. Wen. 2006. The Influence of Green Innovation Performance on Corporate Advantage in Taiwan. Journal of Business Ethics, 67 (4), 331–339. https://doi.org/10.1007/s10551-006-9025-5

Chininga, E., A. L. Alhassan, and B. Zeka. 2024. ESG Ratings and Corporate Financial Performance in South Africa. Journal of Accounting in Emerging Economies, 14 (3), 692–713. https://doi.org/10.1108/JAEE-03-2023-0072

Chiou, T.-Y., H. K. Chan, F. Lettice, and S. H. Chung. 2011. The Influence of Greening the Suppliers and Green Innovation on Environmental Performance and Competitive Advantage in Taiwan. Transportation Research Part E: Logistics and Transportation Review, 47 (6), 822–836. https://doi.org/10.1016/j.tre.2011.05.016

Chouaibi, S., J. Chouaibi, and M. Rossi. 2022. ESG and Corporate Financial Performance: The Mediating Role of Green Innovation: UK Common Law Versus Germany Civil Law. Euromed Journal of Business, 17 (1), 46–71. https://doi.org/10.1108/EMJB-09-2020-0101

Clarkson, M. B. E. 1995. A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance. The Academy of Management Review, 20 (1), 92–117. https://doi.org/10.2307/258888

Clarkson, P. M., Y. Li, G. D. Richardson, and F. P. Vasvari. 2008. Revisiting the Relation Between Environmental Performance and Environmental Disclosure: An Empirical Analysis. Accounting, Organizations and Society, 33 (4), 303–327. https://doi.org/10.1016/j.aos.2007.05.003

Connelly, B. L., S. T. Certo, R. D. Ireland, and C. R. Reutzel. 2011. Signaling Theory: A Review and Assessment. Journal of Management, 37 (1), 39–67. https://doi.org/10.1177/0149206310388419

Consolandi, C., H. Phadke, J. Hawley, and R. G. Eccles. 2020. Material ESG Outcomes and SDG Externalities: Evaluating the Health Care Sector’s Contribution to the SDGs. Organization & Environment, 33 (4), 511–533. https://doi.org/10.1177/1086026619899795

Cucari, N., S. Esposito De Falco, and B. Orlando. 2018. Diversity of Board of Directors and Environmental Social Governance: Evidence from Italian Listed Companies. Corporate Social Responsibility and Environmental Management, 25 (3), 250–266. https://doi.org/10.1002/csr.1452

Dangelico, R. M., and D. Pujari. 2010. Mainstreaming Green Product Innovation: Why and How Companies Integrate Environmental Sustainability. Journal of Business Ethics, 95 (3), 471–486. https://doi.org/10.1007/s10551-010-0434-0

Dewi, R. R., and A. Rahmianingsih. 2024. Meningkatkan Nilai Perusahaan Melalui Green Innovation dan Eco-Effisiensi. Ekspansi: Jurnal Ekonomi, Keuangan, Perbankan dan Akuntansi, 12 (2), 225–243. https://doi.org/10.35313/ekspansi.v12i2.2241

Dimaggio, P. J., and W. W. Powell. 1983. The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields. American Sociological Review, 48 (2), Article 2. https://doi.org/10.2307/2095101

Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 Amending Directive 2013/34/EU as Regards Disclosure of Non-Financial and Diversity Information by Certain Large Undertakings and Groups Text with EEA Relevance, CONSIL, EP, 330 OJ L. 2014. http://data.europa.eu/eli/dir/2014/95/oj/eng

Eccles, R. G., I. Ioannou, and G. Serafeim. 2014. The Impact of Corporate Sustainability on Organizational Processes and Performance. Management Science, 60 (11), 2835–2857. https://www.jstor.org/stable/24550546

European Commission. 2020. The European Green Deal: Striving to be the First Climate-Neutral Continent. https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en

Fatemi, A., I. Fooladi, And H. Tehranian. 2015. Valuation Effects of Corporate Social Responsibility. Journal of Banking & Finance, 59, 182–192. https://doi.org/10.1016/j.jbankfin.2015.04.028

Fatemi, A., M. Glaum, and S. Kaiser. 2018. ESG Performance and Firm Value: The Moderating Role of Disclosure. Global Finance Journal, 38, 45–64. https://doi.org/10.1016/j.gfj.2017.03.001

Flammer, C. 2015. Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach. Management Science, 61 (11), 2549–2568.

Freeman, R. E. 1984. Strategic Management: A Stakeholder Approach. Cambridge University Press.

Friede, G., T. Busch, and A. Bassen. 2015. ESG and Financial Performance: Aggregated Evidence from more than 2000 Empirical Studies. Journal of Sustainable Finance and Investment, 5 (4), 210–233. https://doi.org/10.1080/20430795.2015.1118917

Gangi, F., E. D’Angelo, L. M. Daniele, and N. Varrone. 2020. The Impact of Corporate Governance on Social and Environmental Engagement: What Effect on Firm Performance in the Food Industry? British Food Journal, 123 (2), 610–626. https://doi.org/10.1108/BFJ-02-2020-0140

García-Sánchez, I. M., N. Hussain, S. A. Khan, and J. Martínez-Ferrero. 2021. Do Markets Punish or Reward Corporate Social Responsibility Decoupling? Business and Society, 60 (6), 1431–1467. https://doi.org/10.1177/0007650319898839

Ghisetti, C., and K. Rennings. 2014. Environmental Innovations and Profitability: How Does it Pay to be Green? An Empirical Analysis on the German Innovation Survey. Journal of Cleaner Production, 75, 106–117. https://doi.org/10.1016/j.jclepro.2014.03.097

Guinot, J., Z. Barghouti, and R. Chiva. 2022. Understanding Green Innovation: A Conceptual Framework. Sustainability, 14 (10), Article 10. https://doi.org/10.3390/su14105787

Han, J.-J., H. J. Kim, and J. Yu. 2016. Empirical Study on Relationship between Corporate Social Responsibility and Financial Performance in Korea. Asian Journal of Sustainability and Social Responsibility, 1 (1), 61–76. https://doi.org/10.1186/s41180-016-0002-3

Harel, R., D. Schwartz, And D. Kaufmann. 2020. Organizational Culture Processes for Promoting Innovation in Small Businesses. Euromed Journal of Business, 16 (2), 218–240. https://doi.org/10.1108/EMJB-03-2020-0027

Ioannou, I., and G. Serafeim. 2012. What Drives Corporate Social Performance the Role of Nation-Level Institutions. Journal of International Business Studies, 43 (9), 834–864. https://doi.org/10.1057/jibs.2012.26

Jones, T. M. 1995. Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics. The Academy of Management Review, 20 (2), 404–437. https://doi.org/10.2307/258852

Kalantonis, P., C. Kallandranis, and M. Sotiropoulos. 2021. Leverage and Firm Performance: New Evidence on The Role of Economic Sentiment Using Accounting Information. Journal of Capital Markets Studies, 5 (1), 96–107. https://doi.org/10.1108/JCMS-10-2020-0042

Kallio, T. J., and P. Nordberg. 2006. The Evolution of Organizations and Natural Environment Discourse: Some Critical Remarks. Organization & Environment, 19 (4), 439–457. https://doi.org/10.1177/1086026606294955

Kashani, S. M., and M. M. Shiri. 2022. The Role of Corporate Governance in Investment Efficiency and Financial Information Disclosure Risk in Companies Listed on the Tehran Stock Exchange. Journal of Risk and Financial Management, 15 (12), Article 12. https://doi.org/10.3390/jrfm15120577

Kijkasiwat, P., A. Hussain, and A. Mumtaz. 2022. Corporate Governance, Firm Performance and Financial Leverage Across Developed and Emerging Economies. Risks, 10 (10), Article 10. https://doi.org/10.3390/risks10100185

Koh, K., L. Li, X. Liu, And C. Wang. 2023. The Effect of Audit Partner Diversity on Audit Quality: Evidence from China. Abacus, 59 (1), 340–380. https://doi.org/10.1111/abac.12270

Kraus, S., S. U. Rehman, and F. J. S. García. 2020. Corporate Social Responsibility and Environmental Performance: The Mediating Role of Environmental Strategy and Green Innovation. Technological Forecasting and Social Change, 160, 120262. https://doi.org/10.1016/j.techfore.2020.120262

Li, J., G. Lian, and A. Xu. 2023. How Do ESG Affect the Spillover of Green Innovation among Peer Firms? Mechanism Discussion and Performance Study. Journal of Business Research, 158, 113648. https://doi.org/10.1016/j.jbusres.2023.113648

Li, J., and D. (Andrew) Wu. 2018. Do Corporate Social Responsibility Engagements Lead to Real Environmental, Social and Governance Impact? (SSRN Scholarly Paper 2853877). Social Science Research Network. https://doi.org/10.2139/ssrn.2853877

Lu, L. W., And M. E. Taylor. 2018. A Study of The Relationships among Environmental Performance, Environmental Disclosure, and Financial Performance. Asian Review of Accounting, 26 (1), 107–130. https://doi.org/10.1108/ARA-01-2016-0010

Maharani, Z., And Y. A. Sudibijo. 2023. Pengaruh Green Innovation, Environmental Management Accounting Dan Environmental Strategy Terhadap Environmental Performance Dengan Code of Conduct Sebagai Pemoderasi. Jurnal Ekonomi Trisakti, 3 (1), Article 1. https://doi.org/10.25105/jet.v3i1.15580

Maldonado-Guzmán, G., J. A. Garza-Reyes, and S. Y. Pinzón-Castro. 2023. Green Innovation and Firm Performance: The Mediating Role of Sustainability in the Automotive Industry. Management of Environmental Quality: An International Journal, 34 (6), 1690–1711. https://doi.org/10.1108/MEQ-02-2023-0058

Malik, M. 2015. Value-Enhancing Capabilities Of CSR: A Brief Review of Contemporary Literature. Journal of Business Ethics, 127 (2), 419–438. https://doi.org/10.1007/s10551-014-2051-9

Marpaung, E. I., S. Setiana, and A. Wijaya. 2024. Green Innovation, Sustainable Competitive Advantage dan Sustainability Performance. Jurnal Akuntansi, Keuangan, Pajak dan Informasi (JAKPI), 4 (2), Article 2. https://doi.org/10.32509/jakpi.v4i2.4627

Meshack, K., W. Nyamute, K. Okiro, and E. Duncan. 2020. The Effect of Capital Structure on Financial Performance with Firm Size as A Moderating Variable of Non-Financial Firms Listed at the Nairobi Securities Exchange. European Scientific Journal, ESJ, 16 (22), Article 22.

Obaje, F. O., S. R. Abdullahi, and A. O. Ude. 2021. Moderating Effect of Firm Size on The Relationship between Board Structure and Firm Financial Performance. Journal of Good Governance and Sustainable Development in Africa, 6 (3), Article 3.

Perez-Batres, L. A., J. P. Doh, V. V. Miller, and M. J. Pisani. 2012. Stakeholder Pressures as Determinants of CSR Strategic Choice: Why Do Firms Choose Symbolic Versus Substantive Self-Regulatory Codes of Conduct? Journal of Business Ethics, 110 (2), 157–172. https://doi.org/10.1007/s10551-012-1419-y

Rahi, A. F., R. Akter, and J. Johansson. 2021. Do Sustainability Practices Influence Financial Performance? Evidence from the Nordic Financial Industry. Accounting Research Journal, 35 (2), 292–314. https://doi.org/10.1108/ARJ-12-2020-0373

Rosiliana, N. P. A., and R. R. Dewi. 2023. The Effect of Green Innovation, Green Organizational Culture, Eco-Efficiency and Collaboration on Competitive Advantage. AKUMULASI: Indonesian Journal of Applied Accounting and Finance, 2 (2), Article 2. https://doi.org/10.20961/akumulasi.v2i2.870

Sánchez-Infante Hernández, J. P., B. Yañez-Araque, and J. Moreno-García. 2020. Moderating Effect of Firm Size on the Influence of Corporate Social Responsibility in the Economic Performance of Micro-, Small- and Medium-Sized Enterprises. Technological Forecasting and Social Change, 151, 119774. https://doi.org/10.1016/j.techfore.2019.119774

Saygili, E., S. Arslan, and A, O. Birkan. 2022. ESG Practices and Corporate Financial Performance: Evidence from Borsa Istanbul. Borsa Istanbul Review, 22 (3), 525–533. https://doi.org/10.1016/j.bir.2021.07.001

Shan, X., Y. Song, and P. Song. 2024. How ESG Performance Impacts Corporate Financial Performance: A Dupont Analysis Approach. International Journal of Climate Change Strategies and Management, ahead-of-print(ahead-of-print). https://doi.org/10.1108/IJCCSM-07-2024-0125

Shin, J., J. J. Moon, and J. Kang. 2023. Where Does ESG Pay? The Role of National Culture in Moderating the Relationship between ESG Performance snd Financial Performance. International Business Review, 32 (3), 102071. https://doi.org/10.1016/j.ibusrev.2022.102071

Song, J. 2024. Corporate ESG Performance and Human Capital Investment Efficiency. Finance Research Letters, 62, 105239. https://doi.org/10.1016/j.frl.2024.105239

Spence, M. 1973. Job Market Signaling. The Quarterly Journal of Economics, 87 (3), 355–374. https://doi.org/10.2307/1882010

Suchman, M. C. 1995. Managing Legitimacy: Strategic and Institutional Approaches. The Academy of Management Review, 20 (3), 571–610. https://doi.org/10.2307/258788

Susanto, S., and D. Sopian. 2024. Pengaruh Good Corporate Governance dan Green Innovation terhadap Kinerja Berkelanjutan Perusahaan. Scientific Journal of REFLECTION: Economic, Accounting, Management and Business, 7 (4), Article 4. https://doi.org/10.37481/sjr.v7i4.962

Tay, B., and D. Sundiman. 2021. Pengaruh Inovasi Hijau terhadap Kinerja Berkelanjutan: Peran Moderasi dari Kepedulian Lingkungan Manajerial (Studi pada UMKM di Batam). Derema (Development Research of Management): Jurnal Manajemen, 16 (1), Article 1. https://doi.org/10.19166/derema.v16i1.2505

Tonay, C., and E. Murwaningsari. 2022. Pengaruh Green Innovation dan Green Intellectual Capital terhadap Nilai Perusahaan dengan Ukuran Perusahaan sebagai Moderasi. Jurnal Bisnis dan Akuntansi, 24 (2), 283–294.

van der Laan Smith, J., A. Adhikari, and R. H. Tondkar. 2005. Exploring Differences in Social Disclosures Internationally: A Stakeholder Perspective. Journal of Accounting and Public Policy, 24 (2), 123–151. https://doi.org/10.1016/j.jaccpubpol.2004.12.007

Velte, P. 2017. Does ESG Performance Have an Impact on Financial Performance? Evidence from Germany. Journal of Global Responsibility, 8 (2), 169–178. https://doi.org/10.1108/JGR-11-2016-0029

Velte, P. 2024. Sustainable Board Governance and Environmental Performance: European Evidence. Business Strategy and The Environment, 33 (4), 3397–3421. https://doi.org/10.1002/bse.3654

Waddock, S. A., and S. B. Graves. 1997. The Corporate Social Performance-Financial Performance Link. Strategic Management Journal, 18 (4), 303–319. https://www.jstor.org/stable/3088143

Walls, J. L., P. H. Phan, and P. Berrone. 2011. Measuring Environmental Strategy: Construct Development, Reliability, and Validity. Business & Society, 50 (1), 71–115. https://doi.org/10.1177/0007650310394427

Xie, Y. et al. 2018. Leadership Style and Innovation Atmosphere in Enterprises: An Empirical Study. Technological Forecasting and Social Change, 135, 257–265. https://doi.org/10.1016/j.techfore.2018.05.017

Yan, X., and Y. Zhang. 2021. The Effects of Green Innovation and Environmental Management on The Environmental Performance and Value of a Firm: An Empirical Study of Energy-Intensive Listed Companies in China. Environmental Science and Pollution Research, 28 (27), 35870–35879. https://doi.org/10.1007/s11356-021-12761-9

Yung, W. K. C. et al. 2011. A Life-Cycle Assessment for Eco-Redesign of a Consumer Electronic Product. Journal of Engineering Design, 22 (2), 69–85. https://doi.org/10.1080/09544820902916597

Zhang, M., A. Wang, and S. Zhou. 2023. Effect of Analysts’ Earnings Pressure on Environmental Information Disclosure of Firms: Can Corporate Governance Alleviate the Earnings Obsession? Borsa Istanbul Review, 23 (2), 495–515. https://doi.org/10.1016/j.bir.2022.12.001

Zheng, J., M. U. Khurram, and L. Chen. 2022. Can Green Innovation Affect ESG Ratings and Financial Performance? Evidence from Chinese GEM Listed Companies. Sustainability, 14 (14), Article 14. https://doi.org/10.3390/su14148677

Download

Share

COinS