Beyond Linear ESG Effects: Configurational Pathways to Superior Profitability Among Environmental Proactive Firms

ABSTRACT

This study re‐examines the relationship between environmental, social, and governance (ESG) engagement and firm financial performance by moving beyond linear, net‐effect models toward a configurational perspective. Focusing on a global sample of 1380 non‐financial firms with high environmental maturity (CDP Climate Change score ≥ B), we investigate how sustainability‐oriented firms achieve superior operating profitability (return on assets [ROA]) under different combinations of organizational and contextual conditions. Using fuzzy‐set qualitative comparative analysis (fsQCA), we identify five distinct and equifinal configurations linking ESG dimensions, governance structures, innovation intensity, capital investment, firm size, institutional context, and market valuation to high profitability. The findings reveal pronounced equifinality and causal asymmetry: Strong ESG performance is neither a necessary nor sufficient condition for superior profitability. Instead, both ESG‐intensive and ESG‐compensatory pathways coexist, depending on how sustainability capabilities are combined with complementary organizational resources and institutional conditions. Across configurations, market valuation (Tobin's Q ) appears as a consistent enabling contextual condition, reflecting external recognition of strategic coherence rather than a direct financial outcome. By integrating the resource‐based view, stakeholder theory, and complexity theory, this study demonstrates that the financial value of sustainability is configuration‐dependent. It further shows that ESG capabilities operate as part of broader resource bundles and that market‐based validation plays a critical enabling role. The findings provide a context‐sensitive framework for managers and policymakers, highlighting that financially successful sustainability strategies depend on internally coherent and externally validated configurations rather than uniform ESG prescriptions. Importantly, these findings apply specifically to firms with advanced sustainability engagement.