Can R&D investment be a key driver for sustainable development? Evidence from Korean industry

Abstract

Environmental, social, and governance (ESG) management is an essential element for corporate sustainability. However, the effect of ESG management on corporate financial performance (CFP) is inconsistent, and not many studies have been conducted for Asia and developing countries, which are in the early stage of ESG management. In addition, although R&D investment influences ESG management, few studies have focused on the relationship between R&D investment, ESG, and CFP. We analyse the effect of ESG management on CFP using panel data combining ESG rating and financial data of Korean companies and examine moderating effect of R&D investment between ESG and CFP. We find the following results. First, ESG performance has a negative effect on CFP while there is no statistically significant effect in heavily polluting industries (HPI). Second, R&D investment has no significance on CFP, but a positive moderating effect exists between environmental (E) and social (S) performance and CFP. With environmental issues and climate change being a global concern, this study provides theoretical and managerial implications for companies to create synergies in R&D investment and ESG management.