Investigating the Impact of Environmental, Social, and Governance Performance on Financial and Non-Financial Performance of Companies: The Moderating Role of Structural Management Characteristics

Objective Improving the firm's financial and non-financial performance in the era of globalization has always been the demand of, and received attention from, stakeholders. In addition, after global warming, market collapse, and economic crises, stakeholders become increasingly aware of the importance of environmental, social, and governance performance as one of the non-financial components that can affect the firm's financial and non-financial performance. The firm's financial and non-financial performance is linked to the structural elements of management and the composition of the board of directors. Managers as representatives of stakeholders must protect their interests, but all their strategic decisions, including decisions related to environmental, social, and governance activities, are affected by their characteristics. Integrating ESG factors into management characteristics reshapes the firm's strategies and practices. Firms that prioritize these elements are likely to enhance their reputation, attract investment, and achieve sustainable growth. Based on this, the current research aims to investigate the moderating role of management's structural characteristics on the impact of environmental, social, and governance performance on the firm's financial and non-financial performance. Methods Four research hypotheses were analyzed using data from 166 firms listed on the Tehran Stock Exchange during the period from 2013 to 2023 (including 1,660 firm-year observations) and multivariate regression. Environmental, social, and governance performance was measured using the model of Fakhari et al. (2018), financial performance was measured using Tobin-Q, and non-financial performance was measured using structural capital. Among the set of management structural characteristics, four characteristics—management entrenchment, board independence, board diversity, and managerial ability—were investigated. Results Environmental, social, and governance performance has a positive and significant impact on both financial and non-financial performance. Management entrenchment and managerial ability strengthen the positive impact of environmental, social, and governance performance on financial performance, while board independence and board diversity do not play a moderating role in this context. However, management entrenchment, board independence, board diversity, and managerial ability all strengthen the positive impact of environmental, social, and governance performance on non-financial performance. Conclusion ESG practices aligned with the objectives of sustainable development play a critical role in reshaping the firm's resource allocation. In contemporary discourse, considerable emphasis is placed on monetary performance indicators, particularly financial performance. However, achieving environmental and social norms to ensure the firm's sustainability necessitates attention to both dimensions of performance: financial and non-financial. Management, as the guiding force of the firm, can enhance non-financial performance through decisions related to environmental, social, and governance activities by reducing potential conflicts between society and the company and lowering associated costs. These efforts also contribute to improving financial performance. In this research, for the first time, the impact of environmental, social, and governance performance on financial and non-financial performance is investigated simultaneously and at the same time, the moderating role of various aspects of the management structural characteristics on this impact has been comprehensively evaluated.