Does ESG Impact Firms’ Sustainability Performance? The Mediating Effect of Innovation Performance

In this age of global warming, academics and policymakers are increasingly concerned about firm environmental sustainability success. Therefore, this study aims to investigate whether Environmental, Social and Governance (ESG) performance impacts sustainability performance through the mediating effect of firm innovation. To this end, Structural Equation Modeling (SEM) was deployed to analyze data collected from the employees of manufacturing industries in Bangladesh. The results revealed that ESG performance significantly enhances the innovation and sustainability performance of manufacturing industries, indicating that the higher the ESG performance of a firm, the greater its innovation and sustainability performance. Furthermore, the results confirmed that firm innovation performance fully mediates the relationship between ESG initiatives and sustainability performance. The findings of this study provide policymakers and industry authorities with valuable insight into the role of ESG and innovation performance in improving sustainability performance. Specifically, the study sheds knowledge on how firm ESG initiatives and innovation performance impact sustainability performance in the manufacturing sector of an emerging economy such as Bangladesh.