From Green Sales to Sustainable Strategy: How Internal Capabilities Shape ESG Outcomes

Abstract

This study empirically investigates how green revenue generation influences corporate sustainability performance within European Union firms. Using a panel dataset of 4727 firm-year observations from 682 listed companies (2013–2023), the analysis focuses on how revenues from environmentally sustainable products and services enhance ESG outcomes. Employing fixed effects and system-GMM regression models, the study addresses endogeneity and unobserved heterogeneity. The findings reveal that green revenue has a strong positive association with overall ESG scores, especially when internal organizational factors such as human rights, workforce quality, management practices, and product responsibility are robust. Notably, human rights and effective management amplify the green revenue–sustainability link, while workforce and product responsibility show stronger moderating effects on the social dimension. In governance outcomes, management quality plays a pivotal role. Theoretically, the study integrates stakeholder theory, the resource-based view, and dynamic capabilities to explain how external green strategies must be aligned with internal strengths. For policymakers, the results highlight the value of supporting corporate green initiatives with governance reforms. For managers, the study underscores that leveraging green revenue alone is insufficient; embedding strong internal practices ensures maximized ESG impact and long-term sustainable value creation.