What Really Explains ESG Performance? Disentangling the Asymmetrical Drivers of the Triple Bottom Line

Why is there such great heterogeneity in environmental, social, and governance (ESG) performance between firms? Drawing inspiration from the locus of performance literature, we use variance partitioning methods to analyze the extent to which CEO, firm, industry, year, and state effects explain variation in ESG performance over recent decades. Our findings show that internal effects (i.e., CEO and firm) are the strongest determinants. Yet, disaggregation of the multidimensional ESG construct shifts the salience of the factors significantly, revealing the importance of the external environment (i.e., industry and year) in explaining ESG concerns. Our research extends the locus of performance literature to our understanding of the triple bottom line and contributes to understanding the complex determinants of firm-level ESG performance across an array of positive and negative ESG indicators.

Automated summary

This study applies variance partitioning methods to analyze the determinants of ESG performance. The findings suggest that internal effects, such as CEO and firm, have the strongest influence, but the disaggregation of the multidimensional ESG construct reveals the importance of the external environment, including industry and year, in explaining ESG concerns.