This paper explores how environmental, social, and governance (ESG) controversies influence corporate sustainability performance in Saudi Arabia, a rapidly transforming economy under Vision 2030. It investigates whether such controversies act solely as reputational liabilities or whether they can trigger meaningful governance reforms.
Based on a panel dataset of 322 firm-year observations from 76 publicly listed Saudi companies over the period 2014–2023, this study applies fixed effects and system-GMM regression techniques. The theoretical framework draws on stakeholder and legitimacy theories to evaluate how firms respond to ESG-related scrutiny.
Contrary to prevailing assumptions, the findings reveal that ESG controversies may serve as inflection points for corporate transformation. Firms facing public and regulatory pressure tend to implement corrective measures that improve their ESG scores over time. This supports the “reputational repair” hypothesis and underscores the adaptive capacity of firms in high-pressure environments.
The results have strategic relevance for corporate leaders, policymakers, and investors in the MENA region. They suggest that managing ESG controversies constructively can enhance stakeholder trust, drive governance improvements, and promote long-term sustainability, especially in emerging markets undergoing institutional reform.
This study contributes to the regional ESG and corporate governance literature by offering empirical evidence from Saudi Arabia. It reframes ESG controversies as potential catalysts for reform, shedding light on how firms in transitioning economies can align with evolving societal expectations and global sustainability standards.
