Environmental, Social, and Governance Choices and Chance‐Constrained Network Firm Efficiency: Does ISO 14000 Environmental Management Matter?

ABSTRACT Many firms face increasing pressure from stakeholders as the global shift toward sustainability intensifies. As a result, whether ESG investments and ISO 14000 certification improve or reduce firm efficiency remains widely debated. Managers and policymakers need to understand how these efforts affect firm efficiency. Using 670 firm‐year observations spanning the years 2013 to 2022, this study examines the impact of ESG performance, which encompasses 10 subcomponents of ESG factors, and ISO 14000 certification on the efficiency of firms within the supply chain of Advanced Micro Devices Inc. This study employs a chance‐constrained network data envelopment model to assess firm efficiency across three key stages: eco‐operation, strategic, and marketability. This study employs ordinary least squares and truncated regression methods to investigate the relationship between ESG and firm efficiency while comparing ISO 14000‐certified firms with their noncertified counterparts. Empirical results indicate that ESG performance has a significantly negative impact on overall efficiency. However, mixed relationships are observed among the ESG subcomponents, ISO 14000 certification, and overall and individual‐stage efficiency. These findings suggest that adopting a one‐size‐fits‐all ESG approach can result in poor resource utilization and inefficiency. Overall, this study contributes to ESG performance research by showing that not all ESG practices have the same impact. The findings also provide useful guidance for firms to align their ESG investments with their specific goals and operations to enhance supply chain performance.