Sustainability and firm performance: the role of environmental, social and governance disclosure and green innovation

Purpose This paper aims to determine whether financial performance is affected in firms adopting separately or jointly two sustainability tools (green innovation and environmental, social and governance reporting (ESG)). Design/methodology/approach The empirical study examines a sample of 211 S&P 500 firms over the 2011 to 2019 period and uses the quantile estimation method. Findings The results show that two dimensions of ESG disclosure (the social and governance dimensions) and green innovation positively affect financial performance. This result suggests that sustainability tools have a strong financial impact. The positive relationship between green innovation and financial performance is detected at the 10th quantile up to the 70th quantile. This finding suggests that financial performance needs a moderate investment in green innovation. When considering the joint effect of ESG disclosure and green innovation, our findings show that the positive impact of some ESG disclosure dimensions (social and governance) on financial performance is more observable with a moderate investment in green innovation. Originality/value This study highlights the prominent role of sustainability tools in financial performance. Despite the contributions of the literature, to our knowledge, the relationship between these tools and financial performance is not yet comprehensively investigated. Sustainability is less studied from the social movement perspective. This paper is among the few to study the effect of ESG reporting on financial performance in a world of green innovation.