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Does ESG Performance Drive Firm-Level Innovation? Evidence from South Korea

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  • Hyunah Lee

    (School of Business, Gachon University, 1342 Seongnam daero, Sujeong-gu, Seong-nam-si 13120, Gyeonggi-do, Republic of Korea)

Abstract

This study investigates the relationship between environmental, social, and governance (ESG) performance and firm-level innovation, with a particular focus on how this relationship evolves in response to external shocks such as the COVID-19 pandemic. Using intellectual capital as a measure of innovation, the study employs Tobit regression analysis on a panel dataset of South Korean listed firms from 2013 to 2023. The findings reveal a positive association between ESG performance and firm-level innovation, which becomes statistically significant only in the post-pandemic period. A detailed examination of ESG sub-dimensions shows that environmental and social performance are positively associated with firm-level innovation exclusively in the post-pandemic period, while governance performance maintains a consistently positive relationship with innovation across both periods, becoming more pronounced after the pandemic. These findings suggest that ESG practices foster firm-level innovation and highlight the shifting dynamics of this relationship during crises such as the COVID-19 pandemic, when stakeholder engagement and networks become crucial for organizational resilience. This study provides valuable insights for various stakeholders including managers, investors, and policymakers, emphasizing the importance of integrating ESG considerations into corporate strategies to enhance innovation capacity and long-term competitiveness.

Suggested Citation

  • Hyunah Lee, 2025. "Does ESG Performance Drive Firm-Level Innovation? Evidence from South Korea," Sustainability, MDPI, vol. 17(4), pages 1-23, February.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:4:p:1727-:d:1594563
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    References listed on IDEAS

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