Building Resilience Through ESG: Evidence from Employees’ Stress and Innovation

Organizations increasingly rely on environmental, social, and governance (ESG) practices as a core element of sustainable management, yet little is known about how ESG affects employees during periods of crisis. Despite the growing ESG literature, limited research has examined how firm-level ESG performance influences employee psychological mechanisms and innovative behavior under crisis conditions through multi-level pathways. Drawing on corporate reputation theory and conservation of resources (COR) theory, this study examines how corporate ESG performance shapes employee experiences and behaviors under crisis conditions. This study conceptualizes ESG performance as a reputation-based organizational resource that buffers employees against psychological stress, thereby enabling innovative behavior that is critical for business sustainability. In addition, team cohesion as a contextual social resource was proposed to strengthen the stress-buffering effect of ESG. Using multi-level data from 980 employees nested within 51 large Korean firms, combined with objective ESG ratings collected prior to the crisis, this study tests the proposed model through multi-level structural equation modeling. The results show that higher corporate ESG performance is associated with lower employee psychological stress, which in turn promotes innovative behavior. Moreover, team cohesion amplifies the negative relationship between ESG performance and employee stress. By revealing a micro-level pathway through which ESG enhances employee well-being and innovation during crises, this study advances research on the economic and business aspects of sustainability.