The Relationship between Firms’ Operational Slack Resources and ESG Performance

Abstract

This study aims to investigate operational management determinants for ESG (Environment, Social, and Governance) management. Market expectations for companies now include not just financial responsibility but also environmental, social, and governance responsibilities, impacting investor and customer preferences. Thus, firms are increasingly investing effort into ESG activities for sustainable management. However, additional performance management regarding ESG activities may burden companies beyond traditional measures like productivity and profit. From this perspective, the study aims to show how firms’ operational slack resources in capacity and supply chain affects ESG performance indicators from 2011 to 2021 using the panel regression method. Based on our results, we can suggest that firms with surplus capacity resources tend to achieve better ESG performance as they can accommodate additional tasks. Conversely, a surplus cash conversion cycle in the supply chain, indicating liquidity for ESG activities, may hinder ESG performance. Overall, companies with capacity slack resources and faster cash conversion cycles generally have the capability to invest in ESG initiatives, highlighting the importance of resource management in sustainable business practices.