Does ESG Performance Create Value? Unraveling the Roles of Corporate Reputation, Investor Trust, and Corporate Governance

Abstract

This study examines the impact of Environmental, Social, and Governance (ESG) performance on firm financial performance and investor intention. It further investigates the mediating roles of corporate reputation and investor trust, along with the moderating role of corporate governance. The study aims to explain how ESG translates into financial and behavioral outcomes through reputational and psychological mechanisms. A quantitative approach was used with Partial Least Squares Structural Equation Modeling (PLS-SEM). Data were collected from 380 individual investors and financially literate respondents in Pakistan using purposive sampling. All constructs were measured using validated five-point Likert scales adapted from prior studies. Results show that ESG performance significantly enhances corporate reputation and investor trust, which in turn positively influence firm financial performance and investor intention. Corporate reputation and investor trust partially mediate these relationships, confirming their role as key mechanisms in ESG value creation. However, corporate governance does not significantly moderate the ESG–corporate reputation link, suggesting a more direct rather than conditional role. Overall, ESG operates through both reputational and trust-based pathways. The study integrates Stakeholder Theory and Signaling Theory to explain how ESG influences firm outcomes through dual mediators. It also provides evidence that corporate governance does not act as a moderating factor in this relationship in an emerging market context, contributing to theory refinement. Findings suggest that firms should focus on authentic ESG practices and transparent communication to strengthen reputation and investor trust. Policymakers should enhance ESG disclosure frameworks to improve market transparency and investor confidence. Corporate governance remains important as a structural mechanism supporting accountability.

Keywords: ESG, Corporate Reputation, Investor Trust, Corporate Governance, Firm Financial Performance, Investor Intention