Multinational Enterprises' ESG Strategy Against Institutional Pressures in Emerging Markets: The Moderating Effect of Digitalization Capability

ABSTRACT This study examined the institutional pressures that influence the implementation of a multinational enterprises' (MNEs) environmental, social, and governance (ESG) strategy in emerging markets. It investigated the sustainable performance (i.e., financial, social, and environmental performance) resulting from MNEs' strategic responses to institutional pressures in host markets. Based on institutional theory, this study developed hypotheses regarding the relationships between three types of institutional pressures (i.e., regulatory, normative, and cognitive) and MNEs' ESG strategy, as well as the moderating role of digitalization capability on the outcomes of these strategic responses. A three‐wave survey over nine months involving MNEs in China enabled hypothesis testing through structural assessments, drawing on data from 122 MNEs across eight countries. The results indicate that each type of institutional pressure positively impacts MNEs' ESG strategy, and these strategies, in turn, have a positive effect on sustainable performance. However, the moderating effect of digitalization capability between ESG strategy and sustainable performance was significant only for financial performance. This study addresses gaps in previous research and provides theoretical and practical implications for MNEs operating in emerging markets.