Between green gains and growing pains: a systematic review of ESG initiatives and firm outcomes

Abstract

Purpose This study aims to explore how external drivers and environmental, social and governance (ESG) initiatives influence firms’ decisions and performance across financial and non-financial dimensions. It disentangles the various firms’ actions on ESG that constitute different types of firm-level initiatives and examines their effects on organizational outcomes. Guided by the institutional logics perspective, the study explains how these initiatives are shaped by external pressures and normative expectations and identifies how initiatives influence financial performance, non-financial performance or a combination of both. Design/methodology/approach Drawing on 72 peer-reviewed articles published in top-tier accounting journals, this study analyzes and synthesizes the existing literature to examine firm-level ESG initiatives and their association with firms’ decisions and performance. Findings The review identifies key external drivers and internal ESG initiatives that shape firm outcomes. State-regulatory logic, reflecting coercive pressures or regulatory mandate together with pressure from stakeholders (e.g. investors or auditors), underpins several initiatives (e.g. board characteristics, adoption of management control systems [MCS] and sustainability disclosure) that jointly influence both financial and non-financial performance. By contrast, initiatives grounded by market logic, driven primarily by competition and market forces, such as financial flexibility, tend to affect financial outcomes, while those shaped by state-regulatory logic, such as climate governance, are more closely associated with non-financial outcomes. Practical implications By revealing tangible connections between disentangled ESG initiatives and firm decisions and performance, these insights can support more informed materiality assessments, enabling firms to prioritize ESG initiatives that align sustainability objectives with business performance goals. Originality/value The study challenges the prevailing tendency in prior research to treat ESG as a homogeneous construct, which overlooks the distinct ways in which these dimensions shape firms’ actions. This review highlights how each ESG dimension, and their potential interplays, gives rise to specific initiatives that influence corporate behavior and outcomes differently. This paper further introduces the institutional logics perspective as a guiding lens to explain how institutional pressures at both macro and meso levels drive firms to pursue different ESG initiatives. In doing so, this research bridges fragmented literatures, brings theoretical coherence to a complex field and offers practical value by equipping firms with insights to support more informed and strategic decision-making.