The Impact of Business Strategy on ESG Performance

Abstract

With global environment deterioration, ESG has become a newly emerging research area. A lot of previous researches focus on ESG and financial performance, yielding the long-lasting debate on whether firms’ ESG practice conflicts with its economic interests. Business strategy is found to be directly relevant to firms’ long-term development goals as it navigates the firms’ future development. This research explores the effect of business strategy on corporate ESG performance, considering the moderating effects of economic uncertainty and government environmental regulation, filling the research gap in relevant empirical evidence. Using Chinese A-share listed companies from 2009 to 2021 as the sample, business strategy is measured with reference to the method of Bentley. The findings indicate that business strategy has a positive influence on firms’ ESG performance, with “prospector-like” firms outperforming “defender-like” ones. Both economic uncertainty and government environmental regulation strengthen this positive relationship. This study suggests that differentiated ESG policies are necessary, given that business strategy is a crucial factor in determining corporate ESG performance. These insights can also offer guidance for the firms in aligning their strategy with the global sustainable development goals, offering a roadmap for integrating ESG practice in the dynamic landscape of emerging markets.