Impact of ESG Activities on the Innovation Development and Financial Performance of Firms

Abstract

In the technology-driven economy, a firm’s sustainable financial performance is significantly influenced by its efficiency in research and development (R&D) and broader innovation initiatives. Conversely, while embracing ESG-related activities can potentially open up a broader spectrum of funding, it may also impose challenges on companies as they strive to meet the escalating demands for sus tainability practices and contend with increasing ESG-related risks. Hence, businesses are confronted with the imperative of making prudent ESG-related investments while simultaneously maintaining a strong track record in innovation performance. The findings of numerous studies suggest that investments in ESG projects can yield both positive and negative outcomes for innovation performance. However, recent trends within the ESG industry have amplified concerns regarding the trade-offs between ESG considerations, innovation endeavors, and overall financial performance.