Microfoundations of ESG Performance: Organizational Behavior, Incentive Contracts, and the Moderating Role of the Digital Political Economy

Pei Wang

Abstract

Environmental, Social, and Governance (ESG) performance has become a core strategic concern for firms worldwide due to tightening regulatory pressures, evolving stakeholder expectations, and the urgency of sustainable development. This study investigates the microfoundations of ESG performance (ESGP) by examining how internal organizational behavior and incentive contracts shape ESG outcomes, and how these effects are conditioned by the external green/digital political economy. The empirical analysis relies on an unbalanced panel of 325 listed companies from multiple countries over the period 2020–2024. ESGP scores serve as the dependent variable, while indicators of organizational behavior and incentive contracts constitute the main explanatory variables. Using descriptive statistics, multiple linear regression, and moderated regression within a fixed-effects framework, we estimate the impacts of internal drivers and their interaction with the green/digital policy context. The results show that incentive contracts exert a strong positive effect on ESGP (β = 0.42, p < 0.01), while organizational behavior has a moderately positive impact (β = 0.28, p < 0.05). Crucially, the interaction between incentive contracts and the green/digital index is also positive and significant (β = 0.35, p < 0.01), indicating a substantive moderating effect of the external political economy. The overall model fit suggests substantial explanatory power, underscoring that micro-level governance mechanisms yield stronger improvements in ESG outcomes when embedded in supportive green/digital regulatory environments. These findings imply that firms adopting structured incentive systems and participatory behavioral models are better positioned to enhance ESG performance, particularly in jurisdictions with robust green and digital policy frameworks.

 

Keywords: ESG performance; organizational behavior; incentive contracts; green political economy; corporate governance; structural equation modeling (SEM).

 

DOI: https://doi.org/10.55463/hkjss.issn.1021-3619.66.1


Full Text:

PDF


References


E. Ingebretsen, (2023) “ESG is a key pillar of investment strategy,” Journal of Securities Operations & Custody, 16(1), pp. 57-69. http://dx.doi.org/10.69554/XOFL7906

N. Annesi, M. Battaglia, I. Ceglia, and F. Mercuri, (2025) “Navigating paradoxes: Building a sustainable strategy for an integrated ESG corporate governance,” Management Decision, 63(2), pp. 531-559. https://doi.org/10.1108/MD-10-2023-2006

N. Alessa, J. Y. Akparep, I. Sulemana, and A. O. Agyemang, (2024) “Does stakeholder pressure influence firms environmental, social and governance (ESG) disclosure? Evidence from Ghana,” Cogent Business & Management, 11(1), p. 2303790. https://doi.org/10.1080/23311975.2024.2303790

M. Gurung, S. Taneja, G. Singh, M. Kaur, and D. Kalra, (2025) “Bridging the Gap: Aligning ESG With Financial Disclosures for a Sustainable Global Trade System,” In Aligning Financial Reporting Standards With Global Trade Needs, pp. 1-28. IGI Global Scientific Publishing. https://doi.org/10.4018/979-8-3373-0887-6.ch001

W. Guifang, (2024) “A Micro-Class Teaching Data Retrieval Method of Business English Based on Network Information Classification,” Informatica, 48(6). https://doi.org/10.31449/inf.v48i6.5450

M. Carreño, (2024) “Strategic Integration of ESG in Business Transformation: A Roadmap for Sustainable Success,” SSRN, p. 4986686. https://dx.doi.org/10.2139/ssrn.4986686

Z. Jiao, (2025) “Enhanced Bank Marketing System Using Optimized GSA-BP Neural Network for Improved Customer Targeting,” Informatica, 49(17). https://doi.org/10.31449/inf.v49i17.6960

X. Zhang, Q. Jiang, J. Cifuentes‐Faura, X. Hu, and Y. Li, (2025) “Do tax incentives matter in promoting corporate ESG performance toward sustainable development?,” Business Strategy and the Environment, 34(1), pp. 57-69. https://doi.org/10.1002/bse.3966

Y. Liu, Y. Yang, X. Zhang, and Y. Yang, (2024) “The impact of technological innovation on the green digital economy and development strategies,” PLOS ONE, 19(4), e0301051. https://doi.org/10.1371/journal.pone.0301051

F. Akilah, (2024) “ESG Implementation in Business: Managing the Sustainability Goals in Micro, Small, and Medium Enterprises (MSMEs),” SUKUK: International Journal of Banking, Finance, Management and Business, 3(1), pp. 55-67.

K. A. Markovich, E. A. Alekseevna, and C. D. Alekseevna, (2022) “Ecological, Social and Governance Impact on the Company's Performance: Information Technology Sector Insight,” Procedia Computer Science, 214, pp. 1065-1072. https://doi.org/10.1016/j.procs.2022.11.278

S. Suhardjo, Y. Wati, N. Renaldo, S. Musa, and C. Cecilia, (2024) “Implementation of Digital Accounting on the Effectiveness of Corporate Social Responsibility and Environmental, Social, and Governance Reporting,” Interconnection: An Economic Perspective Horizon, 2(1), pp. 41-49. https://doi.org/10.61230/interconnection.v2i1.90

Perdana and S. Tan, (2024) “Harnessing Technologies and Data to Accelerate and Operationalize Environmental, Social, and Governance (ESG) Initiatives,” In Digital Transformation in Accounting and Auditing: Navigating Technological Advances for the Future, pp. 347-375. Cham: Springer International Publishing. https://doi.org/10.1007/978-3-031-46209-2_12

S. Chen, 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

U. Karki, A. Kumar, and D. Sharma, (2025) “Banking in sustainability: an integrated MCDM framework for evaluating the environmental, social, and governance (ESG) sustainable banking performance,” Global Knowledge, Memory and Communication. https://doi.org/10.1108/GKMC-04-2024-0241

Shaikh, (2022) “Environmental, social, and governance (ESG) practice and firm performance: an international evidence,” Journal of Business Economics and Management, 23(1), pp. 218-237. https://doi.org/10.3846/jbem.2022.16202

X. Bao, B. Sun, M. Han, Q. Mai, and H. Lin, (2024) “Corporate integrity culture on environmental, social, and governance (ESG) performance,” Corporate Social Responsibility and Environmental Management, 31(2), pp. 1399-1417. https://doi.org/10.1002/csr.2637

T. H. Ng, C. T. Lye, K. H. Chan, Y. Z. Lim, and Y. S. Lim, (2020) “Sustainability in Asia: The roles of financial development in environmental, social and governance (ESG) performance,” Social Indicators Research, 150(1), pp. 17-44. https://doi.org/10.1007/s11205-020-02288-w

Z. Yu, U. Farooq, M. M. Alam, and J. Dai, (2024) “How does environmental, social, and governance (ESG) performance determine investment mix? New empirical evidence from BRICS,” Borsa Istanbul Review, 24(3), pp. 520-529. https://doi.org/10.1016/j.bir.2024.02.007

M. Saharti, S. M. Chaudhry, V. Pekar, and E. Bajoori, (2024) “Environmental, social and governance (ESG) performance of firms in the era of geopolitical conflicts,” Journal of Environmental Management, 351, 119744. https://doi.org/10.1016/j.jenvman.2023.119744

Y. Xu and N. Zhu, (2024) “The effect of environmental, social, and governance (ESG) performance on corporate financial performance in China: Based on the perspective of innovation and financial constraints,” Sustainability, 16(8), 3329. https://doi.org/10.3390/su16083329

R. Wang and Y. Hu, (2025) “Green Behaviors Among Employees in Chinese E-Commerce Companies: Impact of Environmental, Social, and Governance (ESG) Performance,” Sustainability, 17(3), p. 940. https://doi.org/10.3390/su17030940


Refbacks

  • There are currently no refbacks.