This study examines how digital transformation (DT) moderates the relationship between environmental, social and governance (ESG) practices and corporate financial performance (CFP). Specifically, it aims to clarify whether and how digitalization strengthens or weakens the financial impact of ESG dimensions.
Using panel data from 250 UK-listed companies over the period 2012–2022, the author has used multiple regression analysis to test both the direct effects of ESG practices on CFP and the moderating role of DT.
The results show that environmental performance has a positive and significant impact on CFP, while social and governance factors exhibit no direct financial effects. Importantly, DT significantly moderates the ESG–CFP relationship: it dampens the positive effect of environmental and social scores on FP, with the strength and direction of these moderating effects varying across ESG dimensions. This suggests a complex and nuanced role for digitalization in shaping ESG outcomes.
This paper advances the ESG–CFP literature by introducing DT as a key moderating variable. The findings offer new theoretical and practical insights into how digital capabilities influence the financial relevance of sustainability and governance practices in modern firms.
