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Article

Impact of Digital Transformation on ESG Management and Corporate Performance: Focusing on the Empirical Comparison between Korea and China

by
Huifang Liu
1,2 and
Jin-Sup Jung
3,*
1
School of Management, Sichuan University of Science & Engineering, Zigong 643002, China
2
Digital Intelligent Management of Chinese Baijiu and Ecological Decision Optimization in the Upper Reaches of the Yangtze River Key Laboratory of Sichuan Province, Yibin 644000, China
3
Department of International Business, Chungbuk National University, Cheongju 28644, Republic of Korea
*
Author to whom correspondence should be addressed.
Sustainability 2024, 16(7), 2817; https://doi.org/10.3390/su16072817
Submission received: 4 January 2024 / Revised: 18 March 2024 / Accepted: 25 March 2024 / Published: 28 March 2024
Browse Figure
Review Reports Versions Notes

Abstract

:
With the development of digital technology, tasks such as carbon neutrality have emerged as global issues because of the climate crisis. Digital transformation (DT) and environmental, social, and corporate governance (ESG) management have already become strategic requirements on the agenda of corporate management, but theories and empirical research on how to affect corporate performance through digital transformation and ESG management are lacking. This study examined the intrinsic mechanism of DT to corporate performance based on the theory of a resource-based view (RBV). In addition, the theoretical framework of ESG management as mediating variables was constructed. The ‘Partial Least Squares Structural Equation Model (PLS-SEM)’ was used to verify the hypotheses derived from the literature. Empirical analysis was conducted on companies interested in DT and ESG management in Korea and China. DT positively affected ESG management and corporate performance (e.g., non-financial and financial performance). On the other hand, an examination of the relationship between ESG management and corporate performance revealed differences between the results from Korea and China. The strategic implications for corporate DT and ESG management are suggested. In particular, this study also contributes to the academic aspect by providing new explanations for applying resource-based view theory and the relationship between DT, ESG management, and corporate performance.

1. Introduction

The industrial structure and competitive environment are changing rapidly because of the development of digital technology. Moreover, the era of digital transformation (DT), in which the transformation of the industrial ecosystem itself is triggered, has arrived [1]. DT greatly interests scholars, executives, and policymakers as digital technologies continue to be integrated into products, services, and processes [2]. Overall, DT has caused destructive innovation that countries and major companies should respond to [3].
As a major part of the fourth industrial revolution, DT has become a core keyword that comprehensively encompasses all industries worldwide since the World Economic Forum in 2016 [4]. In addition, this has been set as one of the business goals of most companies and has become one of the main activities requiring significant investment in time, human resources, and capital [5]. Fundamentally, from a corporate management perspective, DT derives from internal operational improvements, such as productivity improvement, work efficiency, and operational optimization, using digital technology in data-driven new businesses and strategies that renew customer experience explained as an activity of management innovation of various companies [6]. With the advent of the digital economy and the profound adjustment of technology and market environments, an increasing number of Chinese enterprises are turning to digital technology, encouraging organizational optimization and accelerating the pace of product and service innovation, providing a new impetus for China’s economic development [7]. The same is true of Korea.
Academic interest in environmental, social, and corporate governance (ESG) issues is increasing as companies introduce ESG as a management strategy that meets the needs of the new era. ESG consists of detailed elements of the environment, society, and corporate governance. In addition, it comprises financial factors, such as operating profit sales, and non-financial factors, such as environmental protection, social problem solving, and improvement of corporate governance, and includes core values that can enhance corporate sustainability [8]. In the case of Korea, from 2025, ESG disclosure will be mandatory for stock market-listed companies with total assets of KRW 2 trillion or more, and from 2030, ESG disclosure will be expanded to all KOSPI-listed companies, accelerating ESG management [9]. In September 2020, China’s ‘carbon neutrality’ policy proposal became a major driving force in promoting ESG development. Moreover, the ESG concept is internally consistent with the upgrading of China’s economy from a macro perspective.
The increasing global awareness of climate and environmental issues has accelerated discussions on ESG management. At the same time, DT is already making significant contributions to reducing pollutant emissions and protecting the environment, enabling people to solve a range of traditional problems in a digital way [10]. ESG management and DT are now inevitable trends for companies. Hence, an empirical and theoretical framework that comprehensively considers them is needed. Based on the resource-based view theory, this study reveals the internal impact mechanism of DT and ESG management on firm performance.
According to the RBV, the competitive advantage of an enterprise lies in how it acquires valuable and scarce resources and capabilities. Nasiri et al. [11] argued that the DT of the supply chain of an enterprise can help it achieve a more stable and robust supply chain network, which in turn improves the ability to share information, collaborate, and integrate among supply chain members, and helps to achieve a sustainable competitive advantage. At different stages of DT, enterprises have different requirements for internal organizational structure, digital development strategy, and other related resources or capabilities [12], and they drive the DT of the enterprise through coordination between them. The resource-based theory holds that ESG management can exploit and utilize the internal resources of the enterprise, and the ability to use these resources is the basis for enhancing the enterprise value [13].
Therefore, from the perspective of resource-based theory, combined with previous studies, theoretical analysis, and empirical research, this study conducted exploratory research to verify the causal relationship between DT, ESG management, and enterprise performance. It provides a new theoretical perspective for studying the impact of DT and ESG management on enterprise performance. This paper reports the differences between Korea and China in DT, ESG management, and corporate performance and provides implications for the sustainable development of Korean and Chinese enterprises.
The remainder of this paper is organized as follows. Section 2 outlines the theoretical background that establishes theoretical systematicity through prior research and a theory review, focusing on the concepts of related major variables (e.g., DT, ESG management, and corporate performance). Section 3 summarizes the hypotheses and research model of the study and the analysis method. Section 4 reports the empirical analyses conducted based on the hypotheses. Finally, Section 5 summarizes the research results and strategic implications.

2. Literature Review

2.1. Digital Transformation

As the core of the fourth industrial revolution, DT has led to changes and innovations in the digital economy, focusing on the revival of manufacturing and economic recovery in many countries through digital technology [14]. The emergence of digital technologies, such as big data and artificial intelligence, has brought development opportunities to all walks of life, and DT has become the direction of global enterprise transformation [15]. In DT, digital technologies (e.g., artificial intelligence, Cloud, IoT) are central to empowering and generating disruptive innovations at the social and industrial levels [5]. The IDC (International Data Corporation) [16] defines DT as ‘an ongoing process in which companies adapt or drive disruptive changes in customers and markets (or external ecosystems) by leveraging their digital capabilities to develop new business models, products, and services’.
DT refers to innovating traditional operating methods and services of a company by combining digital technology with all areas of business and business processes [17]. Kim et al. [18] reported that DT aims to apply new technologies to provide consumers with a differentiated experience to draw satisfaction from consumers and lead to business success. Hess et al. [19] recognized a DT as a phenomenon in which digital technology is used throughout the entire process, from production to consumption, resulting in fundamental changes in business methods. Therefore, efforts to essentially accept technological changes, away from partially utilizing digital technology, are recognized as DT [20]. Nevertheless, these definitions have something in common: they examine the use of digital technologies to enhance service delivery, transform organizational processes and culture, and increase value [21]. Furthermore, digital technologies can reduce negative environmental impacts and improve financial performance [22]. The essence of DT is a company strategy to respond to various uncertainties that determine if a company can survive for a long time in the era of the digital economy.

2.2. ESG Management

In an increasingly digital economic environment, ESG management has become an important means of measuring the sustainable development of enterprises. The fact that many companies are actively introducing ESG management highlights this [23]. The growing interest in ESG management around the world reflects the trend that the purpose of corporate management is shifting from ‘shareholder capitalism’ to ‘stakeholders-centered capitalism,’ highlighting the vital role of companies in sustainable growth by resolving environmental and social issues [24]. ESG management is not a new concept. The main content is to save the environment, fulfill corporate social responsibility (CSR), and make corporate governance transparent in business management. ESG management refers to a management strategy in which a company allocates meaningful resources to the environment, society, and governance to shift from shareholder capitalism to stakeholder capitalism [25]. Han [26] defined ESG management as a meaningful management policy to develop and restore investor confidence, reduce capital raising costs through vitalization of the capital market, improve actual profits from listing, improve corporate image and brand value, and secure sustainability.
Companies are also attempting to introduce ESG management to cope with changes in the new business environment [27]. For example, companies publish various image advertisements proclaiming ESG management or claiming eco-friendly, low-carbon, human rights, and coexistence [28]. ESG management is a management activity that pursues the sustainable growth of a company from a long-term perspective by establishing a virtuous cycle system leading to ‘ESG investment—ESG management—ESG consumption’ [29]. Companies have introduced ESG management to help them grow into sustainable companies by improving their long-term performance [30].

2.3. Corporate Performance

The management performance of a company is evaluated through efficient management of its human and material resources to indicate the degree of achievement of strategies and goals. This concept has an important influence on the survival and profitability of a company and long-term growth, which motivates companies to achieve management goals and improve corporate performance [31]. An analysis of corporate performance and an understanding of the current situation are critical for evaluating corporate competitiveness because corporate competitiveness is ultimately derived from management performance.
Many companies have used non-financial and financial performance indicators for comprehensive corporate performance measurements [32,33]. Generally, the financial performance of a company is used as a concept related to short-term performance, and non-financial management performance is used as a concept related to long-term performance [34]. Of course, financial performance reflects the final results of the company’s operations [35].
Despite the diversity in the measurement and selection of management performance, the selection of performance measurements in actual empirical analysis is limited mainly by data availability. Therefore, in most empirical studies, growth and profitability are measures of management performance. Sales and employment indicators are used to measure growth, and indicators, such as operating profit to sales and operating profit to assets, are used to measure profitability [36]. As the paradigm of corporate management strategy changes from quantitative growth through mass production and consumption in the past to qualitative growth that meets the diverse needs of customers, companies are also increasingly aware of the importance of mid- to long-term non-financial performance as well as short-term financial performance [37]. Won [38] divided business performance into financial performance, including sales performance and market share, and non-financial performance, such as quality level improvement, customer and employee satisfaction, market responsiveness, and accumulation of intellectual assets.

3. Research Hypotheses

3.1. Digital Transformation and ESG Management

DT has affected almost every aspect of the economy, from production to consumption [39]. In particular, DT can function as an effective solution in situations where mega-trend demands, such as energy transition, carbon neutrality, and ESG management. Wang et al. [40] proposed introducing blockchain technology to supply chain management regarding carbon emissions and effectively reduced corporate carbon emissions by strengthening supply chain capabilities through blockchain technology. Faisal et al. [41] studied the relationship between energy consumption and economic growth. They reported that the DT of corporate supply chains had a long-term impact on reducing carbon emissions under the premise of ensuring economic growth.
DT accelerates the realization of ESG management while serving as a solution to address side effects caused by ESG activities. DT contributes significantly to reducing pollutant emissions and protecting the environment, enabling existing problems to be solved in a more ecofriendly manner [42]. DT can support ESG innovation by standardizing and modularizing corporate resources and processes to reduce costs and improve business models [43]. The following research hypotheses were derived based on these preceding studies.
Hypothesis 1.
Digital transformation (DT) positively influences the ESG management.

3.2. ESG Management and Corporate Performance

ESG management contains the core value that sustainability can be improved by considering financial factors (e.g., sales and operating profit) and non-financial factors (e.g., environmental protection, social problem solving, and governance improvement) [8]. Friede et al. [44] suggested that ESG activities are helpful to business performance, showing that ESG activities and corporate financial performance have had a positive (+) effect in 90% of the 2000 research studies published since 1970. According to Hermundsdottir and Aspelund [45], implementing sustainability innovation, which consists of ESG, adversely affects corporate competitiveness by increasing costs from a traditional and short-term perspective. On the other hand, according to the newly revised mid-to-long-term perspective, it improves corporate competitiveness by reducing costs and improving efficiency. Aouadi and Marsat [46] reported that ESG significantly affects corporate value and sustainability in the long run.
Jung et al. [47] confirmed that corporate value perception plays a partial mediating role in the relationship between ESG management activities and the management performance of a company. When ESG management is performed, it forms good relationships with stakeholders inside and outside the market in the long run and positively affects corporate reputation and image. Lins et al. [48] reported that corporate activities on ESG can enhance trust between corporations and stakeholders. Kang et al. [49] verified the relationship between ESG management activities and corporate financial characteristics. They reported that the ESG management activities of a company had a positive (+) effect on the corporate value.
Therefore, the following research hypotheses were derived based on previous studies.
Hypothesis 2.
ESG management positively influences corporate performance.
Hypothesis 2.1.
ESG management positively influences non-financial performance.
Hypothesis 2.2.
ESG management positively influences financial performance.

3.3. Digital Transformation (DT) and Corporate Performance

Typically, a DT is a way of applying digital technologies to improve the performance or impact of a company [50]. In the digital age, data are becoming a central factor of production development [51]. Data mining has become an important way for companies to improve their performance. Hess and Matt [19] understood DT as ‘a change in the financial, structural and value creation dimensions to respond to new digital technologies’ when digital technology has a significant impact on consumer awareness and behavior. Digital transformation improves the operating profit of enterprises by optimizing the financial management process, changing the internal labor structure, and reducing the total scale and labor cost share of digital technologies [52]. Thus, many scholars have argued that DT of firms can help improve their financial performance and increase corporate value and stock liquidity [53,54]. Because DT plays an important role in economic and social change, it also has become an important source of financial and non-financial performance [55,56]. In general, DT can improve financial performance, corporate value, and innovation performance [57,58].
DT is a business activity that pursues growth and survival by acquiring new digital technologies and responding to changes in the business environment [59]. The importance of these corporate activities is being emphasized in strengthening corporate competitiveness through DT [60]. DT of the supply chain of manufacturing enterprises will further drive business innovation, enhance the customer experience, improve the overall performance of the organization, and ultimately increase the competitive advantage to ensure the sustainable development of the enterprise [61,62]. DT, directly and indirectly, affects corporate performance and various performance indicators [63]. Based on these preceding studies, the following hypotheses were derived.
Hypothesis 3.
Digital transformation (DT) positively influences corporate performance.
Hypothesis 3.1.
Digital transformation (DT) positively influences non-financial performance.
Hypothesis 3.2.
Digital transformation (DT) positively influences financial performance.

3.4. Mediating Effect of ESG Management

Starting from how DT can benefit a firm’s ESG strategy, Nicola and Karen [64] suggest that DT can contribute to corporate financial performance by facilitating the implementation of ESG strategies, helping to develop ESG assessment and monitoring techniques, and improving the information transparency of firms, easing corporate financing constraints. Through DT, companies drive digital synergies of the external business environment, society, and governance system and actively support companies in ESG management [65]. In addition, in the early stages of DT, companies can leverage digital technologies to enhance their dynamic ability to design green products, services, and processes to reduce emissions of hazardous pollutants and minimize consumption of natural resources [55]. In other words, ESG management can be promoted as DT accelerates. Companies that engage in ESG management can increase their corporate value by receiving positive evaluations from stakeholders through management activities with high soundness in the decision-making process through eco-friendly management, management that takes the lead in social contribution, and transparent governance [66].
Companies are now relying on AI, IoT, and big data analytics to implement sustainable business practices that reduce carbon emissions and minimize other environmental waste [67]. When a company makes a large-scale investment in developing an eco-friendly ecosystem, it incurs costs temporarily, but it can highlight the positive image of an eco-friendly company to consumers and enjoy the effects of increasing profitability by enhancing the brand value [25].
The basis for the assertion that ESG management positively impacts corporate management performance is that the ESG capabilities of a company motivate employees to work, increase their sense of fellowship, and significantly influence corporate capabilities [68]. In addition, ESG activities positively affect overall customer satisfaction [69,70]. Zhong et al. discussed the positive effects of DT on ESG performance [71]. Kang et al. [49] verified the relationship between ESG management activities and corporate financial characteristics, which examined the impact of corporate ESG management activities on corporate value (e.g., Tobin’s Q). The following research hypotheses were derived based on these preceding studies.
Hypothesis 4.
ESG management mediates the effect of digital transformation (DT) on corporate performance.
Hypothesis 4.1.
ESG management mediates the effect of digital transformation (DT) on non-financial performance.
Hypothesis 4.2.
ESG management mediates the effect of digital transformation (DT) on financial performance.
Figure 1 presents the research model that combines the above hypotheses.

4. Empirical Analysis

This study developed research hypotheses and constructed theoretical models by searching, summarizing, and analyzing the existing literature on DT, ESG management, corporate performance, and other variables. The questionnaire was designed based on the research hypotheses and theoretical models. This study adopted the mature scale verified by the existing research in the questionnaire design process to ensure a scientific and rigorous questionnaire design. At the same time, the number of overall items in the questionnaire was controlled within a reasonable range. The quality of the questionnaire was tested using a pre-survey. The final valid questionnaire did not contain the data obtained from the pre-survey.
Korea and China have similar histories and cultures, but there are some differences in the political systems and economic levels. Therefore, comparing two important Asian countries with similar and different perspectives would be academically and practically meaningful. In particular, it is worth exploring whether there is a difference between them in terms of the impact of DT on corporate performance. Thus, an empirical analysis was conducted on companies interested in DT and ESG management in Korea and China. The questionnaire was distributed using a simple random sampling technique in Shandong Province, China, and Chung Cheongbuk-do, Korea. In China, the questionnaire was collected through the ‘Wenjuanxing’ online platform; 175 questionnaires were collected, and 151 questionnaires were used for the final statistical analysis after excluding inadequate responses. The South Korean questionnaire was collected through on-site visits and online surveys; 152 questionnaires were collected, and 146 samples were used for the final analysis after improperly written questionnaires were excluded. The survey period was from 5 March 2022 to 5 July 2022. Table 1 lists the characteristics of the sample.

4.1. Measures

All research variables (e.g., DT, ESG management, non-financial performance, financial performance) in this study were measured on a five-point Likert scale ranging from 1, ‘strongly disagree’, to 5, ‘strongly agree’. The specific measurement items are as follows (Table 2).

4.2. Validity and Reliability Analysis

According to a previous study [3], the PLS-SEM method estimates the path coefficient by minimizing the prediction error between latent variables and the measurement errors of the variables measured in the study. Therefore, the predictive power can be maximized by minimizing errors among variables. Hence, there is a high likelihood that the practical application of the PLS-SEM technique will improve the validity and reliability of the research analysis results. The evaluation stage of PLS-SEM consists mainly of two stages. The first stage evaluates the measurement model, and the second evaluates the structural model [76]. Measurement models should be evaluated for reliability and validity to ensure that all structures are adequately measured through indicators. The internal consistency was analyzed using Cronbach’s α, CR (composite reliability), and AVE (average variance extracted). Cronbach’s α ranged from 0.81 to 0.93 (reference value 0.7 or more), and the composite reliability ranged from 0.84 to 0.92 (reference value 0.7 or more), all exceeding the reference value, confirming that internal consistency reliability had been secured. The AVE value ranged from 0.63 to 0.84 (a reference value of 0.5 or more), which was evaluated as having convergent validity [6]. Table 3 and Table 4 list the specific results. In particular, all the variables used in this research model exceeded the reference value, indicating that internal consistency is met.
This study attempted to solve the ‘common method bias (CMB)’ by investigating the VIF values simultaneously, which was also described in the relevant part [77,78]. The VIF values were between 1.57 and 3.4 without exceeding the maximum value of 5. In the method, no risk of CMV (common method variance) was detected. The multicollinearity between the endogenous latent variables and latent variables is determined using the internal model VIF values [79]. No multicollinearity was observed between independent variables because the evaluation result showed that the VIF value was less than the threshold of 5.
The discriminant validity of the measurement variables used in this study was verified. The discriminant validity indicates the degree to which a potential variable differs from other latent variables. The evaluation method judges that the discriminant validity can be seen if the average variance extracted value of each of the two latent variables is greater than the square of the correlation coefficient between the two latent variables [50].
As shown in Table 5, the correlation coefficient between the latent variables was less than the square root (diagonal) of the AVE value. According to Wijaya et al. [80] and considering the Fornell–Larcker test, Hair et al. [81] also proposed observing the HTMT to analyze discriminant validity. In this approach, the discriminant validity was considered reasonable when the HTMT value did not exceed the threshold of 0.90 [82]. As determined using Smart-PLS (Table 6), all HTMT values were lower than 0.800, confirming that the latent variables have convergent and discriminant validity [83,84].

4.3. Testing the Hypotheses

The structural models were assessed before performing the hypothesis tests. The PLS-SEM can evaluate the structural model with the determination coefficient (R2) and predictive relevance (Q2). According to Falk and Miller, R2 > 10% means that the interpretability of the model is acceptable, i.e., one potential variable is the factor that causes a change in another variable [85]. If the Q2 value is greater than 0, the exogenous latent variable has overall predictive suitability for the endogenous latent variable [86]. Thus, a model has predictive relevance when Q2 ≥ 0, where a larger Q2 indicates stronger predictive relevance [87]. The Q2 of ESG management was 0.185 with a value of 0 or higher (See Table 7). Therefore, the Q2 of the structural model for endogenous potential variables exists [88]. The SRMR value ranges from 0 to 1; values < 1.00 indicate a model with a good fit [89]. SRMR < 0.08 indicates a good fit between the model and the data, and SRMR < 0.05 indicates an excellent fit [90]. The observed SRMR value of 0.071 in Korea and China indicated a good fit for the model.
The hypotheses testing and verification were conducted using Smart PLS. Based on Chin [91] and Hair et al. [79], bootstrapping was rotated 5000 times to verify. When verifying a research hypothesis, the critical ratio (C.R.) value, which represents the statistical significance level of the path coefficient, is considered first. If the C.R. value is outside the standard range (−1.96 to +1.96), the null hypothesis is rejected at the 95% confidence level (if not, the research hypothesis is accepted). Therefore, it is judged to be statistically significant.
The results for Korea showed that the DT had a positive effect on ESG management (t = 11.706, p = 0.000), as listed in Table 8. Hence, ESG management positively affects the non-financial performance (t = 4.712, p = 0.000) and financial performance (t = 2.215, p = 0.027) of a company. In addition, the DT positively affected the non-financial performance (t = 3.879, p = 0.000) and financial performance (t = 6.321, p = 0.000) of the company. Therefore, Hypotheses 1, 2-1, 2-2, 3-1, and 3-2 were accepted.
In the case of China, the DT positively affected ESG management (t = 7.264, p = 0.000). ESG management affected the non-financial performance of the company (t = 5.589, p = 0.000) but did not affect the financial performance (t = 1.160, p = 0.246). In addition, the DT positively affected the non-financial performance (t = 4.406, p = 0.000) and financial performance (t = 5.108, p = 0.000) of companies. That is, Hypotheses 1, 2-2, 3-1, and 3-2 were accepted, but Hypothesis 2-2 was rejected.

4.4. Mediating Effect Verification

This study analyzed the mediating effects using a non-parametric bootstrapping approach to test the importance of the indirect effects proposed by Preacher et al. [92] and Zhao et al. [93]. The percentile bootstraps and bias correction bootstraps were calculated with 5000 resampling to test for specific indirect effects. As a result, the mediating effect was significant (p < 0.05).
Bootstrapping was performed to test the mediating effect hypothesis (Table 9). In the case of Korea, the mediating effect of ESG management in the relationship between DT and non-financial performance was proven (t = 4.182, p = 0.000). The mediating effect of ESG management on the relationship between DT and financial performance was statistically significant (t = 2.081, p = 0.038).
In the case of China, the mediating effect of ESG management in the relationship between DT and non-financial performance was statistically significant (t = 3.912, p = 0.000). In the relationship between DT and financial performance, however, the mediating effect of ESG management was not statistically significant (t = 1.101, p = 0.271).

5. Conclusions

5.1. Discussion

This study examined the effects of DT on corporate performance, the mediating role of ESG management, and the differences between Korea and China.
First, DT positively affects ESG management. DT and ESG management in the Korean and Chinese cases produced the same research results. This is consistent with Peng et al. [94], who reported that ‘DT has an impact on ESG by improving resource utilization, optimizing enterprise management processes, and improving internal governance’. In conclusion, DT can initiate competitive advantages for companies, improve risk-taking, and promote enterprises to pay attention to ESG [95]. Thus, business managers should combine DT and ESG management to take full advantage of the positive effects of DT.
Second, Korea and China have different analysis results on the relationship between ESG management and corporate performance. From the perspective of the relationship between ESG management and non-financial performance, Korea and China had a positive influence. The corporate value can be improved by acquiring a good image from investors and consumers as a company that helps solve social and environmental problems, and trust can be gained by minimizing management risks.
In Korea, ESG management has a positive impact on corporate financial performance. In China, however, ESG management did not match the financial performance of the company. Because ESG management levels in Korea and China are different, they have shown different results. In addition, ESG management does not produce short-term profits but affects the financial and non-financial performance of companies in the mid-to-long term. In the case of China, most companies are still in the early stages of ESG management, so it is difficult to assess its effects on financial performance. Many difficulties will be encountered when attempting to improve the ESG of Chinese enterprises. The cost of ESG practice is too high, the investment of capital and human resources is too high, and ESG impacts corporate performance [96]. Nevertheless, companies with good ESG performance may have a negative impact on short-term profits due to increased R&D investment. In the long term, however, such companies have high growth potential, and their financial performance will improve significantly [97].
Third, Korea and China have all achieved positive results in studying the relationship between DT and corporate performance. This result is consistent with the complementary view of RBV that digital technologies need to be integrated with the company strategy to form a strong dynamic capability to realize the value of digital technologies [5]. DT based on a resource-based view theory is an effective means for enterprises to improve sustainable performance [13]. Therefore, using DT appropriately can improve the corporate image or customer satisfaction and help increase sales and profits. Usually, companies that accelerate DT and adapt quickly to the digital environment have relatively high performance and market value, while companies that do not will continue to lose their competitive advantage. DT has been associated with using digital technologies to improve industry efficiency and productivity [98]. Therefore, these results are consistent with previous studies.
Finally, this research examined the positive mediating effects of ESG management between DT and corporate performance. In the case of Korea, ESG management has a mediating effect between DT and corporate performance (non-financial and financial performance). In China, ESG management has a mediating effect between DT and corporate non-financial performance. On the other hand, there was no mediating effect between DT and corporate financial performance. Hence, ESG management activities are ineffective in the short term but effective in the mid-to-long term. Through exchanges with stakeholders, especially consumers, stakeholders can be aware of the ESG management activities of a company. Moreover, when stakeholders understand this, it can be converted into final management performance. Basically, efforts to disclose or evaluate corporate ESG information are not to promote ESG activities but to develop a structure that can form a positive relationship with financial performance.

5.2. Implications

This research has the following academic implications. From the RBV, using digital technology to achieve standardized and efficient communication with customers in DT can consolidate the existing market of enterprises, reduce the information and time costs of enterprises, and improve the performance of enterprises. This paper discussed the mechanism of DT on corporate performance, provided in-depth thinking, and enriched the research results of DT. Nevertheless, there are still some gaps in the research on the mechanism of the influence of DT on corporate performance. This paper compensates for this gap by introducing ESG management as a mediating mechanism, bringing new thinking when analyzing how DT affects the integrated development of the corporate environment, social responsibility, and corporate governance. Moreover, the study enriches the literature on corporate DT [94].
This study has the following practical implications. Enterprises should grasp the advantages DT brings. According to the empirical research in this paper, DT can help improve the level of attention enterprises pay to ESG management, and enterprises should be fully aware of the social support and economic benefits brought by the investment of DT and ESG management. ESG performance is an important measure of corporate sustainability and is widely recognized as one of the critical factors for long-term success. Enterprises should change their business philosophy and combine ESG management with enterprise resource mobilization to improve the overall operational efficiency of enterprises and achieve high-quality development. Companies should consider their strengths and weaknesses, implement DT and ESG operations in a local context, and combine the two to maximize the spillover effects of DT on enterprise performance. Considering that the government and external stakeholders are increasingly interested in corporate ESG performance, a new idea to explore the impact of corporate ESG management in the context of the digital economy has been presented. Government departments should improve the incentive policies and standard systems for DT and ESG management by enterprises; help enterprises change their governance concepts, methods, and norms; systematically promote institutional innovation; and deepen reform for DT and ESG management.
Moreover, a comparison of Korea and China, which are important and adjacent in Asia, and conducting an empirical analysis indicated differences and related implications between the two countries. South Korea and China pay more attention to DT, but the two countries focus differently on ESG. In recent years, South Korean enterprises have used ESG as a business strategy, while Chinese enterprises focus mainly on ESG disclosure and ESG evaluation. Therefore, the practice of ESG in enterprises of the two countries is different, which leads to differences between Korea and China. This study expands the existing literature on the effects of DT and the driving factors of ESG management and reports ways in which DT affects ESG management, providing an empirical basis for further deepening ESG theory and practice in Korea and China under the digital environment.

5.3. Limitations and Future Research

Although this study contains the above meaningful academic and policy implications, it had the following limitations, which may be important for future research. First, there is a limit to generalizing the results of this study because the results were derived from a cross-sectional study rather than a longitudinal study. A supplementary study through a longitudinal study should be conducted because there may be a time lag when measuring management performance. Second, there are limitations in sample selection. This study researched companies in Chungcheongbuk-do in Korea and Shandong Province in China. In the future, it will be necessary to expand the study to other regions of the two countries or other countries. Third, the investigation did not compare the impact of DT on business performance across different industries or company sizes. This can limit the competence to assess the relative effectiveness of DT in various contexts. Nevertheless, academic, policy, and practical implications through the basic model of this study could be a valuable basis for future research.

Author Contributions

Conceptualization, H.L. and J.-S.J.; methodology and analysis, H.L. and J.-S.J.; writing—original draft preparation, H.L.; writing—review and editing, J.-S.J. All authors have read and agreed to the published version of the manuscript.

Funding

This work was supported by funding for the academic research program of Chungbuk National University in 2022.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

The data presented in this study are available on request from the corresponding author.

Conflicts of Interest

The authors declare no conflicts of interest.

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Sustainability 16 02817 g001
Figure 1. Research model.
Figure 1. Research model.
Sustainability 16 02817 g001
Table 1. Characteristics of the sample.
Table 1. Characteristics of the sample.
CharacteristicsNo. (Korea)% (Korea)No. (China)% (China)
Firm ageLess than 5 years 37 25.3 15 9.9
5 to less than 10 years25 17.1 4831.8
10 to less than 15 years2919.9 39 25.8
15 to less than 20 years2215.1 24 15.9
More than 20 years3322.6 25 16.6
Firm salesLess than a billion33 22.617 11.3
1 to less than 10 billion41 28.1 43 28.5
10 to less than 100 billion34 23.3 53 35.1
100 to less than 1000 billion11 7.5 18 11.9
More than 1000 billion27 18.5 20 13.2
IndustryMachinery 96.2127.9
Clothing/fiber trade 7 4.826 17.2
Electrical/electronic trade 128.2 22 14.6
Semiconductor 7 4.810.7
Automobile 85.517 11.3
Pharmaceutical/bio-pharmaceutical 4 2.77 4.6
Other manufacturing 29 19.9 9 6.0
Financial/insurance 2 1.4 4 2.6
Wholesale and retail trade 9 6.2 5 3.3
Logistics 3 2.1 3 2.0
Other Services 47 32.2 18 11.9
Other9 6.227 17.9
Total 146100.0151100.0
Table 2. Index characterization of dimensions.
Table 2. Index characterization of dimensions.
Main FactorsCodeSub-FactorsReference
DTDT1Our company’s leadership can accurately assess the level of digital capabilities or digital skills to execute DT.Vial [5]; Hess et al. [19]; Kim et al. [20]
DT2 Our company can apply significant digital technology.
DT3Our company can respond to digital transformation.
DT4Our company can develop new products, services, or processes using digital technology.
DT5Our company’s leadership can establish a digital vision.
ESGESG1Our company conducts business that values the eco-friendly ecosystem.Kim et al. [9]; Hermundsdottir et al. [45]
ESG2Our company conducts business in pursuit of carbon neutrality.
ESG3Our company conducts business through a win-win supply chain.
ESG4Our company focuses on employee welfare while conducting business.
ESG5Our company pursues sound governance while conducting business.
ESG6Our company conducts the business of ethical management.
NFPNFP1Our company has a good overall corporate image compared to the industry average.Meidan et al. [72]; Chelladurai et al. [31]; Dey et al. [73]
NFP2Our company has a higher brand awareness than the industry average.
NFP3Our company has a higher level of satisfaction with various stakeholders than the industry average.
FPFP1Our company has higher sales than the industry average.Vickery et al. [74]; Wang et al. [75]
FP2Our company has a higher rate of sales growth than the industry average.
FP3Our business is profitable compared to the industry average.
FP4Our company has a high return on assets compared to the industry average.
FP5Our company has a high market share compared to the industry average.
Table 3. Validity and reliability analysis (Korea).
Table 3. Validity and reliability analysis (Korea).
Loadings VIFCronbach’s α rho_A (ρA) CR AVE
DTDT1//0.8870.8890.9220.747
DT2 0.8262.129
DT30.8822.648
DT40.9002.959
DT50.8482.357
ESGESG10.7692.2600.8850.8900.9120.635
ESG20.7241.895
ESG30.8052.182
ESG40.8152.306
ESG50.8602.689
ESG60.8022.107
NFPNFP10.9002.2830.8170.8420.8910.731
NFP20.7751.574
NFP30.8852.002
FPFP10.8532.6370.9200.9230.9400.758
FP20.8913.137
FP30.8712.808
FP40.8792.983
FP50.8572.548
Table 4. Validity and reliability analysis (China).
Table 4. Validity and reliability analysis (China).
Loadings VIFCronbach’s α rho_A (ρA) CR AVE
DTDT1/ 0.8640.8710.9070.710
DT2 0.8662.087
DT30.8332.155
DT40.8562.334
DT50.8131.811
ESGESG10.7541.8190.8940.9020.9220.704
ESG20.8492.655
ESG30.8472.442
ESG40.8813.272
ESG50.8573.089
ESG6//
NFPNFP10.9132.5290.8870.8950.9300.815
NFP20.9032.572
NFP30.8922.537
FPFP10.8582.5460.8890.8900.9230.751
FP20.9013.363
FP30.9083.435
FP40.7961.660
FP5//
Table 5. Discriminant validity results.
Table 5. Discriminant validity results.
KoreaChina
DTESGFPNFPDTESGFPNFP
DT0.864 0.842
ESG0.6820.797 0.5240.839
FP0.7250.6090.870 0.5160.3460.867
NFP0.6460.6760.6710.8550.5750.5940.4050.903
Table 6. HTMT values.
Table 6. HTMT values.
KoreaChina
DTESGFPNFPDTESGFPNFP
DT
ESG0.766 0.583
FP0.8000.670 0.5840.382
NFP0.7500.7780.777 0.6420.6600.449
Table 7. Model fit.
Table 7. Model fit.
KoreaChina
SSOSSEQ2R2SSOSSEQ2R2
DT584.000584.000 604.000604.000
ESG876.000624.2720.2870.461755.000615.1120.1850.270
FP730.000430.8870.4100.544604.000485.0710.1970.264
NFP438.000275.9180.3700.514453.000292.3090.3550.441
Table 8. Hypothesis verification results.
Table 8. Hypothesis verification results.
RelationshipOMSDTp-ValuesResult
KoreaH1DT→ESG0.6820.6830.05811.7060.000 ***Supported
H2-1ESG→NFP0.4400.4420.0934.7120.000 ***Supported
H2-2ESG→FP0.2140.2160.0972.2150.027 *Supported
H3-1DT→NFP0.3460.3430.0893.8790.000 ***Supported
H3-2DT→FP0.5790.5790.0926.3210.000 ***Supported
ChinaH1DT→ESG0.5240.5240.0727.2640.000 ***Supported
H2-1ESG→NFP0.4040.4060.0725.5890.000 ***Supported
H2-2ESG→FP0.1040.1020.0901.1600.246Not supported
H3-1DT→NFP0.3630.3570.0824.4060.000 ***Supported
H3-2DT→FP0.4610.4570.0905.1080.000 ***Supported
*** p < 0.001; * p < 0.05.
Table 9. Testing of the mediating effects.
Table 9. Testing of the mediating effects.
BootstrappingPath CoefficientT Valuep Value95% BCa Confidence IntervalResult
KoreaDT→ESG→NFP0.3004.1820.000 ***[0.170, 0.454]Supported
DT→ESG→FP0.1462.0810.038 *[0.021, 0.299]Supported
ChinaDT→ESG→NFP0.2123.9120.000 ***[0.116, 0.328]Supported
DT→ESG→FP0.0551.1010.271[−0.037, 0.163]Not supported
*** p < 0.001; * p < 0.05.
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Liu, H.; Jung, J.-S. Impact of Digital Transformation on ESG Management and Corporate Performance: Focusing on the Empirical Comparison between Korea and China. Sustainability 2024, 16, 2817. https://doi.org/10.3390/su16072817

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Liu H, Jung J-S. Impact of Digital Transformation on ESG Management and Corporate Performance: Focusing on the Empirical Comparison between Korea and China. Sustainability. 2024; 16(7):2817. https://doi.org/10.3390/su16072817

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Liu, Huifang, and Jin-Sup Jung. 2024. "Impact of Digital Transformation on ESG Management and Corporate Performance: Focusing on the Empirical Comparison between Korea and China" Sustainability 16, no. 7: 2817. https://doi.org/10.3390/su16072817

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