Beyond profitability: heterogeneous associations between ESG-related mechanisms and farm economic sustainability-evidence from Spanish sheep and goat farming

CONTEXT Farm economic sustainability is commonly assessed through individual outcomes such as profitability, income or productivity. This can obscure differences and trade-offs among the economic functions supporting long-term farm viability. Spanish sheep and goat farming provides an informative setting because environmental and social value coexist with economic fragility and substantial exposure to agricultural-policy support. OBJECTIVE This study develops and empirically examines a function-oriented framework to assess how ESG-related mechanisms are associated with farm economic sustainability and whether these associations differ across outcomes. It distinguishes five internal economic functions-profitability, liquidity, labour productivity, productive capital and fixed capital formation-from public support received as a complementary institutional-exposure outcome. METHODS A balanced panel of 480 Spanish sheep and goat farms observed from 2015 to 2022 (3840 farm-year observations) was analysed using FADN/RECAN data. Separate two-way farm and year fixed-effects models were estimated for the six outcomes, with farm-clustered robust standard errors. Joint Wald tests assessed dimension-level ESG associations, while cross-equation coefficient-equality tests on standardised outcomes assessed heterogeneity. Benjamini-Hochberg false-discovery-rate correction addressed multiple testing. Robustness analyses examined extreme observations, outcome scaling, non-linearities, cross-dimensional interactions, lagged explanatory associations and outcome persistence, including checks for short-panel dynamic bias. RESULTS AND CONCLUSIONS ESG-related associations are selective and strongly heterogeneous. Land availability is positively associated with labour productivity, fixed capital formation and public support received. Energy expenditure is negatively associated with profitability, liquidity and labour productivity, but positively associated with fixed capital formation. Mineral fertiliser use is positively associated with productive capital, whereas herbivore feed costs show no significant association with any outcome in the main specification. Social associations are concentrated primarily in labour productivity; governance/institutional associations are outcome-specific. After false-discovery-rate correction, joint associations remain for the environmental dimension with labour productivity, productive capital and fixed capital formation, the social dimension with labour productivity, and the governance/institutional dimension with public support received. Cross-equation tests reject coefficient homogeneity globally and for each ESG dimension. Principal patterns are broadly robust to distributional treatments and outcome scaling, although some associations are sensitive to transformation. Robust non-linearities are concentrated in labour productivity, and no tested cross-dimensional interaction survives multiple-testing correction. Dynamic analyses indicate particularly strong persistence in productive capital, with positive persistence also in profitability and labour productivity. SIGNIFICANCE Distinguishing internal economic functions from institutional exposure reveals heterogeneity and trade-offs that a single performance indicator can conceal. The framework provides a diagnostic basis for sustainability assessment and policy discussion without assuming that improvement in one outcome compensates for deterioration in another. Accounting-based ESG proxies and observational within-farm associations do not establish causal effects or directly measure environmental, social or governance performance. Findings apply to Spanish sheep and goat farms continuously represented in FADN during 2015–2022.