ESG resilience: Exploring the non-linear effects of ESG performance on firms sustainable growth

Using a sample of United States (US) and Chinese listed firms from 2018 to 2022, we investigate the non-linear effect of overall ESG performance on the firm's sustainable growth. Additionally, our analysis involves the decomposition of ESG into its environmental, social, and governance components to examine their individual effects on sustainable growth. High Dimension Fixed Effects, and dynamic panel generalized method of moments key findings reveal a positive effect of overall ESG performance on sustainable growth but as ESG performance increases, the positive impact on firms sustainable growth diminishes and eventually turns negative, indicating an inverse U-shaped relationship. Furthermore, our findings show that not all ESG components exert an equivalent influence on sustainable growth. Specifically environmental and social performance have a greater effect on sustainable growth, highlighting the unequal impact of different ESG dimensions. Sub-sample analysis further accentuates the concept of an optimal level of ESG performance. These findings persist across various measures, estimators, and subgroup analyses. Overall, the results reveal novel non-linear patterns in ESG performance, providing valuable insights for management, investors, and policymakers.