article · Business Strategy and the Environment
A systematic review examining 85 peer-reviewed studies assessed how environmental, social, and governance practices influence corporate sustainability and financial performance. The synthesis reveals that robust governance mechanisms, including board diversity, the strategic integration of sustainability metrics, and effective risk management, serve as key drivers for both improved non-financial performance and corporate profitability. However, the findings also highlight significant gaps in current academic knowledge, particularly regarding the effects of emerging areas such as green innovation, corporate controversies, and digital transformation. Further investigation into the interactions between specific governance structures and sustainability practices is required to establish clearer guidance for business managers and policymakers seeking to implement sustainable operational frameworks.
Understanding how environmental, social, and governance practices affect financial performance helps companies balance responsible management with commercial viability. By demonstrating that effective governance directly underpins profitability, this work aids corporate leaders and policymakers in designing leadership structures and oversight processes that encourage long-term sustainable business operations.
This work offers strategic guidance for corporate directors, risk managers, and policymakers aiming to align governance structures with sustainability targets. Because it is a review synthesising published academic literature, it represents early-stage, conceptual guidance rather than a market-ready tool or service, highlighting a need for further development before frameworks around green innovation or digital transformation can be routinely applied.
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ABSTRACT The article synthesizes existing research on environmental, social, and governance (ESG) practices and explores their impact on corporate sustainability and financial outcomes. [Correction added on 17 December 2024, after first online publication: In the Abstract section, the definition of ESG has been corrected from ‘economic, social, and governance’ to ‘environmental, social, and governance’.] A systematic literature review (SLR) followed PRISMA guidelines, analyzing 85 peer‐reviewed articles from high‐quality journals indexed in Scopus. The results reveal that robust governance mechanisms—such as board diversity, strategic integration of ESG criteria, and effective risk management—are key drivers of enhanced ESG performance and corporate profitability. However, the findings also highlight significant gaps in current knowledge, particularly regarding emerging concepts like green innovation, ESG controversies, and digital transformation. The study concludes that further research is needed to develop a more nuanced understanding of how different governance structures and ESG practices interact and to provide clearer guidance for policymakers and corporate managers in fostering sustainable business practices.
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DOI: 10.1002/bse.4069
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