The Micro Foundations of ESG Performance: Organizational Behavior, Incentive Contracts, and the Moderating Role of the Green/Digital Political Economy

Abstract

Environmental, Social, and Governance (ESG) performance has become an important strategic priority as firms respond to regulatory pressures, stakeholder expectations, and increasing sustainability demands. This study investigates the micro foundations of ESG performance (ESGP) by examining how internal organizational behavior and incentive contracts shape ESG outcomes, along with the moderating effect of the external green–digital political economy. The analysis uses panel data from 325 listed firms across multiple countries from 2020 to 2024, where ESGP serves as the dependent variable and organizational behavior and incentive contracts function as key independent variables. Descriptive statistics, multiple linear regression, and moderated fixed-effects regression were applied to estimate the relationships. The findings show that incentive contracts have a strong positive effect on ESGP (β = 0.42, p < 0.01), while organizational behavior demonstrates a moderately positive influence (β = 0.28, p < 0.05). The interaction between incentive contracts and the green–digital index is also significant (β = 0.35, p < 0.01), indicating that incentives are more effective in policy environments with stronger digital and environmental support. These results suggest that firms implementing structured incentive systems and participatory organizational practices are better positioned to enhance ESG performance. The purpose of this study is to deepen the understanding of how internal behavioral mechanisms interact with external policy conditions to influence ESG outcomes. The work offers novelty by integrating micro-level organizational factors with macro-level political–digital environments, a perspective not commonly addressed in prior ESG research. The findings contribute to both theory and practice by offering evidence-based insights that can guide firms and policymakers in strengthening ESG strategies across diverse regulatory contexts.