Value of ESG in the Time of COVID-19 Crisis: How Corporate ESG Promotes Employee Innovative Behavior

Environmental, social, and governance (ESG) has emerged as an important pillar in integrating corporate business and social responsibility. However, as existing studies have focused on external stakeholders or corporate-level performance, we have a very limited understanding of the impact of corporate ESG performance on organizational members, important internal stakeholders of companies. In addition, the role that corporate ESG can play in uncertain crisis situations such as COVID-19 remains largely unexamined. To fill the gaps, this study explores the effect of corporate ESG on employees in crisis situations. Specifically, based on corporate reputation and the conservation of resources theory (hereafter, COR), this study investigates whether corporate ESG evaluation can act as a positive reputation of a company during the COVID-19 crisis, lowering psychological stress of members and promoting their innovative behavior. Furthermore, this study examines whether team cohesiveness can act as a social resource for employees in a crisis and interact with corporate ESG to reduce their stress. Data were collected from 980 employees of 51 companies in Korea and analyzed through multilevel structural equation modeling. Results showed that employees with high corporate ESG evaluation experienced less psychological stress during the COVID-19 crisis, and as a result, they put more effort into workplace innovation. In addition, the effect of ESG evaluation on lowering employee stress was stronger for employees who perceived high levels of team cohesion. These results suggest that a company's pursuit of social values through ESG can increase employees' well-being and innovation efforts in crisis situations, ultimately increasing the company's likelihood of overcoming the challenges of a crisis.