ABSTRACT This study investigates how corporate governance efficacy (CGE) influences firms' environmental, social, and governance (ESG) performance in a non‐linear manner and examines the moderating role of audit quality (AQ) in this relationship. Drawing on the complementary role of internal and external governance mechanisms in promoting sustainability accountability, the study integrates governance and assurance perspectives within a sustainability strategy framework. Using ESG scores from CRISIL for 180 Indian non‐financial firms during 2020–2023, corporate governance attributes from annual reports, and financial data from the Capitaline database, a fixed‐effects model with cluster‐robust standard errors is employed, supported by robustness checks with alternative model specifications. The findings reveal a U‐shaped association between CGE and ESG performance, indicating that the sustainability benefits of governance reforms materialize only after a certain efficacy threshold is achieved. Moreover, AQ exerts a significant moderating effect: firms audited by Big‐4 auditors reach the positive turning point of the curve earlier, reflecting how high‐quality audits reinforce governance‐driven ESG initiatives. The study contributes to the sustainability governance literature by revealing the non‐linear dynamics between governance and ESG performance and by demonstrating how external assurance enhances the effectiveness of internal governance mechanisms in advancing corporate sustainability outcomes.
Tiwari et al. (Mon,) studied this question.