ABSTRACT As firms navigate increasing pressures to align financial objectives with sustainability commitments, understanding how internal capabilities interact with environment, social, and governance (ESG) investments has become critical. This study examines whether workforce effectiveness (WF) enhances financial (ROA) and sustainability (ESG) performance in European firms and whether this effect depends on product responsibility (PR) and SDG 9 engagement. Using a 15‐year panel of 952 EU‐listed firms (2010–2024), we apply system‐GMM dynamic models with firm and year fixed effects to address endogeneity. Results show that WF consistently improves ROA and ESG performance; however, at higher levels of PR and SDG 9 engagement, its marginal effect declines, indicating capability redundancy rather than complementary synergy. We introduce capability redundancy as a selective calibration mechanism shaping ESG efficiency. These findings challenge the prevailing “more is better” ESG logic and suggest that ESG portfolios should be strategically calibrated rather than expanded indiscriminately. This study introduces a capability paradox that extends Resource‐Based View and Stakeholder Theory, offering a contingency framework for ESG efficiency and strategic selectivity.
Thanasi‐Boçe et al. (Tue,) studied this question.