ESG capital and corporate value creation

We examine whether and when ESG capital is associated with operating value creation and how its effects depend on other capitals emphasized in the Integrated Reporting lens. Using a large cross-country panel with firm-year ESG data, we model nonlinearity and cross-capital interactions and evaluate both contemporaneous and multi-year operating outcomes. Results show a clear nonlinear ESG – performance association: the largest gains arise when firms move from very low to mid-range ESG, with benefits that continue but flatten at higher levels. Crucially, ESG appears to act as a complement to other resources. Under stronger financial capital, ESG’s association with operating performance is larger; under richer intellectual capital, ESG is more strongly linked to the translation of knowledge into results; and with better manufacturing capital, ESG aligns with process and asset-utilization improvements. Component analysis indicates diminishing returns for the environmental dimension, small stand-alone effects for social, and governance effects that become economically meaningful when paired with other capitals. Effects persist over one-, three-, and five-year horizons and are robust to alternative performance measures and sample splits. Managerially, the evidence supports calibrating ESG investment and integrating it with financial discipline, capability development, and operational upgrades.