Digitalization as a Driver of Sustainability: Decoding the Footprints on ESG (Environmental, Social, and Governance) and Firm Performance

In today’s fast-changing world, businesses have a valuable opportunity to adapt and meet new challenges effectively. Environmental, Social, and Governance (ESG) and digitalization (the integration of digital technologies) are key aspects in today’s constantly evolving business operations and market dynamics. These interconnected fields are critical for addressing present global challenges, making them highly relevant areas of research that hold the potential to drive positive change and forward a more sustainable world. This dissertation does not attempt to provide a definitive framework for understanding the relationship between digitalization, sustainability, and ESG performance of firms. Rather, it aims to offer a comprehensive exploration of how this relationship has been evolved, its implications to various stakeholders (customers, investors, employees, communities, NGO’s, and regulators), and the challenges that are associated with; and remain unresolved. Specifically, this thesis seeks to investigate the role of digitalization (digital transformation) in shaping sustainability initiatives and also examine how ESG factors influence the performance of firms. Additionally, it explores the moderation effect of various factors–such as board gender diversity (BGD), ESG-related controversies, research and development (R&D) intensity, and stock market valuations––on the dynamics of this relationship. To achieve these objectives, this dissertation is structured around three independent but interrelated research articles, each contributing to distinct insights into the broader topic of investigation. This first (1st) article of this doctoral thesis is a literature review that aims to provide a comprehensive and up-to-date review of how digitalization impacts the sustainability and performance of firms and synthesize the existing knowledge within an integrated framework. In this paper, we conducted a systematic literature review adopting bibliographic and bibliometric approaches. The descriptive section of bibliometric analysis includes (number of studies over the time-period, top publications, countries, journals, and authors) and Science Mapping analysis used to analyze the collaboration between countries (e.g., co-occurrence, co-authorship, and co-citation) providing a fundamental characteristic of the existing body of knowledge in this research field. The content analysis part of this study highlights four thematic clusters: (i) digitalization’s impact on sustainable firm performance, (ii) sustainable corporate performance and green practices, (iii) integrating industry 4.0 technologies in sustainable supply chain management, (iv) digitalization as s a driver of circular economy business model. This study minimizes the complexity and provides structure and clarity related to this area. It also concludes by discussing the most prominent emerging research themes and identifying key research patterns and areas that should be prioritized in future research agendas for those interested in sustainability and firm performance within the rapidly evolving landscape of digitalization. The second (2nd) research article provides an in-depth empirical analysis of how digitalization influences the environmental, social, and governance (ESG) performance of firms. It also explores the moderating effect of digitalization on the relationship between ESG performance and stock market valuation (companies' values according to the financial market), taking into account sub-themes of ESG scores. In this study findings we reveal that the integration of digital technologies significantly enhances the performance of firms (across all dimensions) of ESG. Furthermore, digitalization strengthens the connection between stock market valuation and ESG performance, indicating that investors may recognize the positive impact of a firm’s digital initiatives on its overall sustainability efforts. Notably, environmental pillar scores experience a favorable moderation due to digitalization, suggesting that technological advancement can lead to improved ecological practices. However, in this research, we also identified trends that were somewhat concerning. Digitalization appears to have a moderately negative effect on the relationship between the social and governance aspects of ESG. This finding highlights that while digital tools can drive environmental improvements, they may simultaneously create challenges in social responsibility and governance structure. In the third (3rd) article, we adopted a quantitative approach to exploring and contributing to the existing literature with a fresh perspective on ESG that examines the nuanced relationship between digitalization and ESG performance within technological firms by exploring the causal link between digital transformation and ESG outcomes. The novelty of this approach is in examining the moderating effect of key governance dimensions such as board gender diversity (BGD), ESG controversies, and R&D intensity on the relationship between digitalization and ESG performance. Our study findings indicate that digital transformation plays a crucial role in boosting the ESG performance of firms in the technology sector. We also found that a diverse board (gender representation) has a strong positive effect on this association, suggesting that organizations with greater gender diversity are more likely to reap the benefits of digital transformation in their ESG practices. ESG controversies appear to have a negative impact on this dynamic, indicating that companies facing public criticism (or controversy) related to ESG issues may struggle to see the positive effects of digital initiatives. Additionally, R&D intensity appears to moderate this relationship positively, reinforcing the idea that investments in research and innovation can increase the effectiveness of digitalization in promoting ESG goals. However, our findings indicate that the impact of R&D intensity is weaker than that of BGD, which emphasizes the varying degrees of influence the moderating factors possess in shaping the dynamics between digitalization and ESG performance. This complexity underscores the need for organizations to contemplate these factors in their strategic planning and implementation of digital technologies. Collectively, this dissertation makes a significant contribution to the macro-level literature on digitalization and corporate sustainability by exploring the drivers and mechanisms that influence companies' sustainable behaviors and their impact on firms' ESG (Environmental, Social, and Governance) performance. This thesis offers a range of theoretical contributions that address different streams of literature and enhance our understanding of sustainability, digitalization, and the behaviors associated with firms' ESG performance. This research provides several key insights: It examines the role of digitalization (transformation) in enhancing organizational performance and investigates its moderating influence on the relationship between the stock market and ESG performance. Moreover, the study explores how board gender diversity (BGD), research and development (R&D) intensity and ESG controversies moderate the link between digitalization and ESG outcomes. On a practical level, this doctoral thesis offers policy implications, providing recommendations on how digitalization and ESG strategies can be leveraged to support more informed decision-making. The findings ultimately lay the groundwork for advancing sustainability and business practices and contributing to more responsible corporate governance.