The Lock-In Effect on ESG and Business Performance Relationship: A Critical Examination and Meta-Analysis

This study investigates whether the issues previously addressed in the literature regarding business performance persist when applying ESG practices. A literature review identified 252 effects, followed by a meta-analysis with subgroup analysis. The lock-in theory and corporate reputation were employed to understand this relationship. The lock-in view allows a deeper assessment of the authors' decisions on measuring ESG practices. On the other hand, corporate reputation focuses on the importance of positive stakeholder perception when adopting ESG practices. The analysis revealed a statistically significant relationship between ESG practices and business performance, demonstrating a weak effect size. Subgroup analysis showed that social and governance practices have positive effects, highlighting that many studies still use corporate social responsibility (CSR) as a proxy for ESG. We confirm this assumption when we find that financial performance did not show significance, which is the same problem that past literature discussed regarding the trade-off between CSR and financial performance. In addition, we confirm previous assumptions that despite having no significant effect on financial performance, environmental, ESG risk, and innovation performance are improved. Other outcomes show that moderators such as the country's economy and company size influenced the results. These findings proved that academics currently face a lock-in effect on ESG empirical research because they measure CSR and ESG as synonyms in their studies. We showed that most of the effects in this study are like past CSR literature, making authors still find no positive association in financial performance and weak relationships between other performance indicators and ESG practices in their empirical research.