Nouf Ben Dahmash

Corporate governance serves as the institutional foundation that aligns managerial decisions with stakeholder interests and sustainable growth. It provides the accountability mechanisms necessary for translating environmental and social initiatives into measurable firm value. This paper examines how Environmental, Social, and Governance (ESG) pillars individually influence firm performance in Gulf Cooperation Council countries (GCCs). The paper analyses a balance panel dataset comprising 84 listed firms observed over a five-year period from 2019 to 2023 with 392 observations. The paper employs two-way fixed effects with Driscoll–Kraay robust standard errors to ensure consistent inference by correcting for heteroskedasticity, autocorrelation, and cross-sectional dependence. Firm performance is assessed by Tobin’s Q, return on assets (ROAs), and sustainable growth rate (SGR), reflecting market valuation, accounting profitability, and long-term sustainable growth, respectively. Tobin’s Q results show that GCC firms’ performance is enhanced by higher environmental pillar scores, whereas it responds negatively to increases in social and governance scores. Findings remain qualitatively similar for ROA but of a smaller magnitude. These findings challenge the conventional assumption that ESG dimensions uniformly enhance firm value, revealing instead that governance and social investments may impose agency costs or compliance burdens in emerging markets where institutional frameworks and stakeholder expectations differ fundamentally from developed economies. The environmental pillar exhibits a positive and significant association with firms’ long-term sustainable growth, whereas the social pillar exerts an adverse effect. Conversely, assessing firm performance with SGR reveals that the influence of the governance pillar is statistically insignificant. Theoretically, this paper contributes by demonstrating that ESG pillars operate through differentiated value-creation mechanisms in institutional contexts characterised by weak stakeholder activism and nascent ESG disclosure norms. Findings suggest GCC firms should prioritise environmental initiatives while carefully evaluating costs and benefits of governance and social programmes.