Modeling governance innovation under esg pressure: A DEMATEL–ANP approach to institutional complexity

Abstract

This study introduces a novel, systems-based framework for assessing ESG governance innovation within controversial financial institutions. The research utilizes the Decision-Making Trial and Evaluation Laboratory (DEMATEL) to identify causal relationships and the Analytic Network Process (ANP) to deduce system-aware priority weights to model the interdependencies among governance elements. The Innovation Readiness Index (IRI) is a composite metric that evaluates an institution's ability to undergo ESG-oriented transformation by integrating these methods. According to the model, Executive Compensation Transparency, Audit Committee Independence, and Board Independence are the primary structural drivers of governance innovation, as evidenced by data from 385 European financial institutions with governance controversies. Conversely, indicators such as Women in Management and ESG Controversy Score function as outcome variables. The study redefines ESG governance as a dynamic and adaptive system and offers a replicable method for assessing innovation readiness in high-risk financial environments.