Sustainability, Value Chain and Political Regime: Implications on Firm Performance

Abstract

Global supply chains face increasing sustainability‐related risks, yet evidence regarding the financial benefits of environmental, social, and governance (ESG) initiatives remains mixed. We argue that these inconsistencies arise because ESG dimensions operate through different value‐creation mechanisms and because existing research pays insufficient attention to the organizational processes through which sustainability becomes economically consequential. Using Bloomberg ESG and financial data for 1830 firms across 80 countries, combined with country‐level political and institutional indicators, we examine whether operational efficiency mediates the relationship between ESG performance and profitability. Results show that environmental and social performance are positively associated with profitability, whereas governance performance exhibits weaker and less consistent effects. Operational efficiency partially mediates the environmental–performance relationship and serves as a significant pathway through which social performance contributes to financial outcomes. In contrast, governance performance demonstrates neither significant mediation nor robust direct effects. Although political‐institutional conditions are associated with firm performance, they exert limited influence on the operational pathways linking sustainability activities to profitability. These findings demonstrate that ESG dimensions create value through distinct mechanisms rather than through a uniform sustainability effect and identify operational efficiency as a central mechanism through which sustainability initiatives become financially material. The study contributes a process‐oriented explanation of how firms translate sustainability commitments into organizational resilience and sustained financial performance.