Examining The Impact and Business Case of Governance in ESG
Research Poster Health & Life Sciences 2025 Graduate ExhibitionPresentation by Samantha Hwang
Exhibition Number 173
Abstract
The inclusion of Governance (G) in Environmental (E), Social (S), and Governance (ESG) has sparked debate, with Larcker and Tayan (2022) arguing that G is a universal necessity for all organizations, making it an ineffective measure of social responsibility. However, the Who Cares Wins report (2004) highlights G as a cornerstone for successfully implementing environmental and social (ES) practices. Given that ESG concerns vary across regions, national governance may also facilitate ES practices. Despite this, limited research has explored G’s influence on ES engagement (Kuzey et al., 2023). This study, therefore, compares the influence of corporate governance and its subdimensions (CGs) and national governance and its subdimensions (NGs) on firms’ ES practices, and their interaction effects, while also examining both G forms as moderators in the ES-firm performance (FP) relationship to assess their role in strengthening the business case for sustainability. By using LSEG data and panel analysis, our findings reveal that CGs generally have positive and significant effects on ES practices, whereas NGs mostly show insignificant effects. Additionally, the interaction terms between CGs, NGs, and ES practices largely yield insignificant results. However, in the ES-FP relationship, NGs has more positive and significant moderating effects on FP, while CGs remains mostly insignificant. This suggests that CGs mainly drives ES adoption, whereas NGs plays a stronger role in converting ES efforts into financial gains. Overall, our findings highlight G’s varying significance by level and emphasize the need for coordinated efforts between national and firm-level governance to maximize ES initiatives’ impact.
Importance
Our study highlights the importance of examining governance (G) at both national and firm levels and its complex influence on ES practices, particularly in enhancing their impact and business case. By analyzing G and its subdimensions at both levels, we offer practical guidance for countries and firms with varying governance backgrounds to effectively implement ES practices. Our findings emphasize the need for coordinated efforts between national and firm-level governance to maximize ES outcomes. While we do not address whether G should remain in the ESG framework, our study contributes to the ESG literature by clarifying G’s distinct role — with firm-level G driving ES adoption and national-level G facilitating financial gains from ES efforts.
DEI Statement
Our study examines ESG, with its social dimension closely linked to DEI practices and governance dimension promoting transparency and diversity inclusion at all levels of the firm. By emphasizing the business case for ESG, our research encourages firms to adopt sustainable practices that can attract investors and consumers who value social responsibility. Our findings highlight the role of governance in advancing ESG initiatives, indirectly promoting DEI by fostering inclusive and socially responsible business practices. We hope that by providing evidence of the financial and societal benefits of ESG, our study inspires greater commitment to sustainability — including DEI efforts — among various stakeholders of society such as firms, investors, and consumers.