Environmental, Social and Governance ( <scp>ESG</scp> ) Performance and Firm‐Performance: Analyzing the Mediating Role of Institutional Investors

ABSTRACT This study examines the impact of Environmental, Social, and Governance ( ESG ) performance on firms' financial performance, specifically focusing on the mediating role of institutional investors and the implications for business. Using data from 27,412 firm‐year observations across 20 established and emerging economies over 14 years, the findings suggest that ESG performance favorably impacts firms' financial performance, and the effects differ by geographical region. In emerging markets, institutional investors have a significant impact on environmental(E) factors, highlighting their growing business relevance in international markets. In contrast, social(S) and governance(G) elements have a greater influence in developed markets, which is aided by institutional investors. Endogeneity issues are addressed through robustness checks and additional analysis using instrumental variables and Two‐Stage Least Squares models, validating the results. The findings highlight the need for framing regional ESG policies and leveraging institutional investors for effective ESG implementation and achieving sustainable financial success across international markets.