Nexus Between ESG Practices and Corporate Performance: The Moderating Role of Regulatory Environment in Emerging and Developed Markets

Abstract

The study investigates the impact of Environmental, Social, and Governance practices on corporate performance and examines how regulatory environments moderate this relationship. A quantitative explanatory research design is employed, using secondary data from 70 publicly listed firms across both Emerging and Developed markets between 2010 and 2024. The study used Fixed Effects regression models, with robustness checks through Random Effects and diagnostic tests. This study finds that ESG practices significantly enhance corporate performance by helping firms manage risks, build stakeholder trust, and improve access to capital. The results show that ESG is most effective when supported by a strong regulatory environment, which enhances transparency, accountability, and alignment with stakeholder interests. Firms operating under robust regulations achieve better financial outcomes through more credible and strategic ESG implementation. The findings highlight that ESG is not merely a voluntary or symbolic effort but a value-creating strategy, especially when guided by institutional support. Thus, regulation and ESG together drive stronger, more sustainable corporate performance across diverse markets. Given these results, firms should embed ESG considerations at the board and executive levels, ensuring that ESG risks and opportunities are systematically integrated into decision-making processes.