Sustainability meets digital culture: the influence of ESG on financial performance in Malaysian manufacturing SMEs

Purpose This paper examines how environmental, social and governance (ESG) intercedes the relationship between digital organizational culture and a firm’s financial performance. It sheds light on the moderating role of government policy in the relationship between digital organizational culture and financial performance. Design/methodology/approach The research employed a descriptive design, which surveyed 360 manufacturing firms from five Malaysian states. A quantitative research study used the application of structural equation modeling (SEM) with SmartPLS version 4.0 to test hypothesized relationships. Findings Key findings unveil a positive relationship between digital organizational culture, intellectual capital and financial performance. Results also reinforce that ESG significantly mediates the relationship between digital organizational culture and financial performance. Additionally, the government policy demonstrates a significant moderating effect on the relationship between digital organizational culture and financial performance. Hence inferring that the interchange and corresponding role of these factors can determine financial performance. Research limitations/implications The study’s cross-sectional nature and focus on Malaysian manufacturing enterprises suggest prospects for longitudinal inquiries across diverse cultural contexts and industry sectors. Additionally, the reliance on self-reported quantitative data, while methodologically validated, signifies the potential for future mixed-method studies to seize multi-layered insights into digital culture and ESG reporting. Originality/value The outcomes contribute to insights by extending a nuanced perspective about how ESG impacts financial performance and has practical implications for SME managers and policymakers for incorporating a digital sustainability agenda. It also increases our comprehension of the substantial role of government policy in boosting digitalization leads in the manufacturing industry in emerging economies.