Beyond symbolism: revisiting the ESG–performance relationship through operational excellence

Purpose This study addresses the inconsistent evidence on whether environmental, social, and governance (ESG) hinders or enhances performance. Drawing on the practice-based view (PBV) and the competitive progression theory (CPT), we argue that this inconsistency stems from how firms approach sustainability, prioritizing ESG reporting over the operational foundation for ESG integration. We conceptualize this foundation as Operational Excellence (OE), a firm-wide commitment to excellence through the persistent adoption of multiple practices and theorize that OE results in ESG adoption and effectiveness. We also hypothesize about the mediating effect of OE-driven ESG adoption on performance. Design/methodology/approach Using a longitudinal panel of 3,394 U.S. manufacturing firm-year observations (2010–2023), we apply System Generalized Method of Moments (GMM) to test the role of OE in ESG adoption and effectiveness. To capture the key elements of our OE conceptualization, we consider the breadth (number of practices) and persistence (the consistency of adoption over time). Several robustness tests are conducted to ascertain the findings. Findings OE facilitates sustainability engagement and the adoption of a broad range of ESG practices. It also enhances ESG effectiveness, as performance gains occur when ESG practices are grounded in prior OE. Results reveal a sequential pattern: firms first adopt OE practices, then ESG practices, leading to improved performance. This reflects temporal mediation, where OE influences performance through ESG practices. Originality/value We conceptualize OE as a firm-wide commitment to excellence that underpins ESG effectiveness—enabling ESG to improve performance by being fully integrated into core operations and aligned with other practices.