Unpacking the Black Box of ESG–Financial Performance: The Parallel Mediating Roles of Brand Value and Green Innovation

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Despite growing attention to ESG activities, the mechanisms through which they translate into financial performance remain underexplored, particularly in emerging markets. This study unpacks the black box of the ESG–FP relationship by examining the parallel mediating roles of brand value and green innovation. Drawing on stakeholder theory, legitimacy theory, and the resource-based view, we propose that ESG commitments enhance financial outcomes through both external reputational (brand value) and internal capability-based (green innovation) pathways. Using survey data from 504 employees across 217 Chinese firms, aggregated at the organizational level, and objective financial indicators from the CSMAR database, we conducted mediation analyses via PROCESS Macro with bootstrapping. Results show that ESG activities are positively associated with financial performance, and this relationship is significantly mediated by both brand value (indirect effect = 0.261) and green innovation (indirect effect = 0.213), with brand value exhibiting a slightly stronger pathway. These findings suggest that ESG investments generate value through dual, complementary mechanisms—stakeholder trust and innovation capability—rather than a single channel. Our study advances ESG literature by integrating fragmented theoretical perspectives and providing empirical evidence from China’s state-driven sustainability context, offering practical insights for managers and policymakers seeking to leverage ESG for competitive advantage.