The impact of sustainability reporting on innovation

This study aims to investigate the impact of sustainability reporting on firm innovation, with a particular focus on whether this impact differs between family and non-family firms. Despite the increasing attention to ESG (environmental, social and governance) disclosure in emerging markets, the role of family ownership in shaping the sustainability-innovation nexus remains unknown. This study uses a panel dataset of 139 companies listed on the Tehran Stock Exchange (TSE) over the period 2014-2023, yielding 1390 firm-year observations. Hypotheses are tested using panel regression methods, including random effects (RE) and dynamic GMM, with stability checks including lagged variables, subsample analysis, and ESG index decomposition. The results confirm that sustainability reporting has a positive and statistically significant impact on firm innovation. However, contrary to expectations from socio-emotional wealth (SEW) theory, the impact of sustainability reporting on innovation is weaker in family firms than in non-family firms. Among the three ESG dimensions, the social dimension exhibits the strongest positive effect on innovation. Further analyses show that the negative moderating effect of family ownership is more prominent in high-innovation firms. This study makes three main contributions. First, it provides empirical evidence from an emerging market context under study (Iran) and extends the sustainability-innovation literature beyond developed economies. Second, it challenges the assumption that family firms inherently use sustainability reporting more effectively to innovate and instead reveals a “preservation paradox” whereby the preservation of socio-emotional wealth and resource constraints limit innovation outcomes. Third, this issue offers practical implications for family firm managers (e.g., moving beyond token reporting, investing in absorptive capacity), policymakers (e.g., mandating structured ESG disclosure, providing targeted support for family firms), and investors (e.g., using social ESG as a signal of innovation while remaining cautious in family firms).