ESG Factors as Drivers of Digital Transformation and Firm Performance:
Evidence from Emerging Market Firms
Abstract
This paper investigates the role of Environmental, Social and Governance (ESG) factors in the adoption process and the effects of digital transformation on the performance of firms in Malaysia. Despite the parallel rise in global attention on sustainability and digitalization, there is little evidence on the links between ESG pressures and digital strategies in emerging markets. Using the stratified random sampling, data was collected from 574 firms across manufacturing, services, and technology sectors, and measured using seven-point Likert scales and analysed using Partial Least Squares Structural Equation Modeling (PLS-SEM). Grounded in the stakeholder theory and the Resource-Based View, the findings show that ESG pressures push the development of digital capabilities to allow firms to gain competitive advantages and better performance. The paper points that Malaysian firms should underpin their ESG requirements on the premise that they are not costs of compliance, but the enablers of digital innovation, and policy makers should incorporate ESG principles into digital transformation frameworks and offer supportive policies that foster sustainable technological development and economic competitiveness.
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