ESG and corporate financial performance: the mediating role of green innovation: UK common law versus Germany civil law

Purpose – The purpose of this paper is to investigate the direct and indirect links between environmental, social and governance (ESG) practices and financial performance using the mediate role of green innovation. Design/methodology/approach – To test the current study hypotheses, the authors applied linear regressions with a panel data using the Thomson Reuters ASSET4 and Bloomberg database from a sample of 115 UK and 90 Germany companies selected from the ESG index over the period 2005–2019. Findings – The results show that the strengths ESG increase the firm value and the weaknesses decrease it. In addition, the authors find that green innovation fully mediates the relationship between ESG practices and financial performance in UK and Germany. Practical implications – The findings provide interesting implications to academics practitioners and regulators who are interested in discovering ESG score, financial performance and green innovation. The results also provide insights to regulators and the board of directors on future growth opportunities for the company and the country. Originality/value – This study is unique in examining the mediation effect of green innovation on the relationship between ESG practices and financial performance.