Beyond greenwashing: how politics shapes firms’ ESG strategies and their financial fortunes

Purpose This study aims to investigate the complex interplay between environmental, social and governance (ESG) performance, firm performance and firm political awareness in an increasingly politicized and globalized world, where corporate sustainability is under intense scrutiny. Design/methodology/approach The study uses data from 466 globally listed retail firms sourced from Bloomberg data set for the year 2022. Multiple linear regression with robustness checks is used for the analysis. Findings While prior research indicates that ESG performance negatively influences firm performance, the findings reveal that a firm’s political awareness can enable positive firm performance alongside ESG performance. Practical implications The findings, which highlight the role of political awareness as an intangible external resource, have implications for the resource-based view of the firm. Amid growing pressures from institutional investors and other stakeholders to enhance ESG performance, the findings are particularly relevant for corporate firms striving to meet ESG mandates without compromising firm performance. Originality/value To the best of the authors’ knowledge, this study is among the first to examine the role of political awareness in shaping the relationship between ESG performance and firm performance. The findings provide valuable insights, highlighting political awareness as a critical tool to mitigate the potential negative influence of ESG performance on firm performance.