The Institutionalization of ESG in Global Business Strategy
- International Academy
- Dec 2, 2025
- 10 min read
Author: Mhmd Ali
Affiliation: Independent Researcher
Abstract
Environmental, Social, and Governance (ESG) frameworks have undergone a profound transformation, shifting from voluntary ethical commitments to becoming a core component of global business strategy. Over the last decade, corporations across developed and emerging economies have faced growing pressure from regulators, investors, consumers, and supply-chain partners to embed ESG principles into their governance structures, long-term planning, and operational models. This article explores how ESG has become institutionalized in global business strategy through a multidisciplinary theoretical lens, integrating institutional theory, Bourdieu’s theory of capital and field, world-systems theory, and contemporary corporate governance scholarship.
Drawing on recent academic sources—particularly from the past five years—this article demonstrates that ESG is now a field of power, capital conversion, and strategic competition. The analysis reveals the mechanisms through which ESG institutionalization occurs: coercive regulatory pressures, normative professionalization, mimetic imitation, symbolic capital accumulation, and global value-chain governance. It further evaluates contradictions between symbolic ESG (image management) and substantive ESG (transformative operational change).
The global political economy dimension is also explored through world-systems theory, showing that ESG diffusion often reflects existing inequalities between core and peripheral economies. While ESG can empower suppliers and emerging-market firms to upgrade capabilities, it can also impose heavy compliance burdens that reinforce asymmetrical power structures.
The article concludes that ESG has redefined corporate legitimacy and strategic value creation. However, the depth and authenticity of institutionalization vary widely across firms and regions. Future research is encouraged to explore the dynamic interplay between ESG, technological change, stakeholder power, and uneven development in global capitalism.
1. Introduction
Over the past decade, ESG has become one of the most influential frameworks shaping business behavior worldwide. Once regarded as a niche responsibility initiative, ESG now influences corporate reporting, strategic planning, investment allocation, risk management, supply-chain design, and leadership development. Major multinational corporations routinely announce climate commitments, human-rights due-diligence plans, diversity and inclusion strategies, and governance reforms.
This rapid rise of ESG cannot be explained solely by managerial goodwill. Instead, it reflects a global institutional transformation driven by regulatory reforms, market expectations, academic scholarship, social activism, and evolving norms of corporate legitimacy. Firms no longer compete only on financial performance; they also compete on sustainability credentials, ethical governance, and societal impact.
At the same time, ESG debates have become polarized. Supporters view ESG as a necessary modernization of capitalism—embedding long-term resilience, climate responsibility, and human well-being into profit-oriented systems. Critics, however, argue that ESG is plagued by greenwashing, inconsistent metrics, politicization, and significant disparities in relevance across industries and geographies.
The central scholarly question therefore emerges:
How has ESG become institutionalized as a global business logic, and what mechanisms and power relations shape its adoption across different regions and industries?
This article provides a comprehensive theoretical and analytical answer to this question. It does so by situating ESG within broader social science theories about institutions, power, social fields, and global inequality. The argument advanced here is that ESG institutionalization is not merely a technical or regulatory phenomenon; it is deeply connected to:
Institutional pressures (coercive, normative, mimetic)
Struggles for symbolic, social, and economic capital
Global value-chain governance and world-systems hierarchy
Changing habitus and managerial mindsets
Competition for legitimacy in the global corporate field
The remainder of this article builds a layered and multidimensional understanding of ESG institutionalization suitable for a Scopus-level academic journal.
2. Theoretical Background
2.1 Institutional Theory and Institutional Isomorphism
Institutional theory argues that organizations respond to external pressures to appear legitimate in the eyes of regulators, investors, and society. DiMaggio and Powell’s (1983) concept of institutional isomorphism explains why organizations in the same field tend to adopt similar practices.
Coercive isomorphism
Arises from laws, regulations, and mandatory disclosure requirements. Increasingly, governments require climate-risk reporting, supply-chain due diligence, anti-corruption systems, and sustainability disclosures.
Normative isomorphism
Stems from professional norms and educational networks.ESG professionals, sustainability consultants, and governance experts spread common standards and expectations.
Mimetic isomorphism
Occurs when firms imitate the ESG practices of perceived leaders to reduce uncertainty.
Institutional theory also highlights decoupling, meaning firms may adopt ESG policies symbolically—such as publishing detailed sustainability reports—without real operational change. This distinction between symbolic and substantive ESG is a major theme explored in contemporary research.
2.2 Bourdieu’s Theory of Field, Capital, and Habitus
Pierre Bourdieu’s sociology sheds light on the power dynamics underlying ESG adoption.
The Corporate Field
The global business environment functions as a field where actors compete for resources, legitimacy, reputation, and influence.
Types of Capital Relevant to ESG
Economic capital: Cost savings from energy efficiency, new low-carbon markets, access to capital.Cultural capital: Expertise in sustainability, technical competence.Social capital: Networks with policymakers, NGOs, investors.Symbolic capital: Reputation as a sustainable, ethical, trustworthy company.
ESG has effectively created new forms of ethical and environmental capital, enhancing a firm’s standing within the field.
Habitus and ESG Internalization
ESG becomes institutionalized when leaders’ habitus—internalized dispositions—comes to view sustainability as part of “proper management.”Executives trained in ESG frameworks, attending sustainability conferences, or working with ESG analysts increasingly internalize ESG thinking.
2.3 World-Systems Theory and Global Value Chains
To understand ESG globally, it is essential to recognize global economic inequalities.
World-Systems Theory (Wallerstein, 1974)
Divides the world into:
Core economies (high value-added production, strong institutions)
Semi-periphery
Periphery (resource extraction, lower value-added production)
ESG standards typically originate in core economies, then cascade down global value chains, often imposing heavy compliance costs on peripheral suppliers.
Global Value Chain (GVC) Analysis
Lead firms in Europe, North America, and East Asia increasingly impose ESG requirements on suppliers. This can:
Improve labour and environmental standards
Increase transparency
Support capacity building
However, suppliers may face costs they cannot absorb, leading to symbolic compliance or being excluded from value chains.
This uneven pressure reflects ongoing global power asymmetries that shape how ESG becomes institutionalized across markets.
3. Method
This article uses a conceptual, integrative, and theory-driven literature review methodology. While it does not collect new empirical data, it synthesizes high-quality academic research to develop a coherent conceptual explanation of ESG institutionalization.
Literature Identification
Sources include:
Peer-reviewed journal articles from 2020–2025
Books on corporate governance, sustainability, and economic sociology
Theoretical works on institutions, power, and world-systems theory
Inclusion Criteria
Relevance to ESG, sustainability management, global governance, institutional pressures
Published in recognized academic outlets
Provides theoretical or empirical contributions with conceptual relevance
Analysis Approach
Organizing literature into themes: regulation, institutional pressures, global inequality, capital forms, organizational learning
Synthesizing theoretical concepts with contemporary ESG trends
Identifying mechanisms through which ESG becomes institutionalized
Critically assessing symbolic vs. substantive ESG adoption
4. Analysis: The Institutionalization of ESG in Global Business Strategy
This section provides a rich, multidimensional analysis of how ESG is being institutionalized globally, using theory and real-world examples.
4.1 Regulatory Forces and Coercive Pressures
Regulations are arguably the strongest driver of ESG institutionalization. Over the last decade, governments have introduced mandatory requirements related to:
Climate risk reporting
Carbon accounting
Biodiversity impacts
Workplace safety
Human-rights due diligence
Anti-corruption practices
Diversity disclosures
Regulation transforms ESG from a voluntary enhancement to a strategic necessity. Firms that fail to comply risk legal penalties, financial sanctions, or exclusion from key markets.
Case Example: Mandatory ESG Reporting in Europe
European jurisdictions have implemented stringent sustainability disclosure frameworks. These rules require firms to establish internal systems for data collection, risk evaluation, and board governance structures.
Influence of Investors
Institutional investors increasingly align capital allocation with ESG metrics:
Pension funds require detailed ESG risk assessments
Asset managers integrate ESG into long-term investment strategies
Shareholders propose ESG-focused resolutions
Debt markets offer sustainability-linked financing
This financial pressure reinforces ESG institutionalization across all sectors.
4.2 Normative Pressures and the Rise of ESG Professionalization
As ESG becomes mainstream, its norms are being internalized through professional education and industry networks.
Professional Norms
A growing ecosystem—composed of sustainability officers, ESG auditors, environmental engineers, governance specialists, and consultants—sets expectations for proper ESG behavior.
These professionals shape:
Reporting formats
Risk-management frameworks
Strategic integration processes
Ethical expectations
Stakeholder engagement practices
Universities and Training Programs
Business schools increasingly include ESG, sustainability management, and corporate responsibility in their curricula.Executives trained in these frameworks bring ESG into boardrooms.
Professional Associations
Many associations promote best practices, offering certifications or guidelines that reinforce normative pressure.
This professionalization creates a cohesive belief system: A good company is a sustainable company.
4.3 Mimetic Pressures and the Competition for ESG Legitimacy
When firms operate in uncertain environments, they often imitate peers seen as successful or legitimate.
The “ESG Race”
High-profile companies often receive media attention, investment benefits, and positive branding for ESG achievements. As a result:
Competitors imitate their policies
Industries converge on common practices
Sustainability indices encourage benchmarking
Corporate communications emphasize ESG leadership
Imitation vs. Innovation
While imitation spreads ESG quickly, it can limit innovation if firms simply copy checklists rather than develop context-specific solutions.
However, imitation can also reinforce institutionalization by normalizing ESG practices across industries.
4.4 ESG as Capital: Symbolic, Social, Economic, and Ethical Power
Bourdieu’s theory provides a powerful lens for understanding ESG as capital.
Symbolic Capital
ESG performance enhances corporate reputation. Firms with high ESG scores are seen as responsible, trustworthy, and modern.
Symbolic capital affects:
Consumer behavior
Talent attraction
Regulatory goodwill
Media coverage
Economic Capital
ESG can generate direct economic benefits:
Lower operational costs through energy efficiency
Better risk management
Access to green financing
Opportunity to innovate in sustainable products
Social Capital
Strong relationships with stakeholders create:
Stability
Trust
Community support
Partnership opportunities
Ethical Capital
A firm perceived as ethical enjoys long-term legitimacy and reduced conflict with stakeholders.
Competition in the Field
Corporations now compete not only on size or profit but on ESG values.This competition accelerates institutionalization.
4.5 ESG Diffusion in a Stratified World Economy
ESG and Global Inequality
World-systems theory reveals how ESG expectations originate in core economies but cascade down global value chains.
Compliance Burdens
Suppliers in developing economies often face:
Costly audits
Documentation requirements
Technology demands
Pressure to meet environmental standards
Many struggle to comply and risk exclusion from supply chains.
Greenwashing and Symbolic Compliance
When suppliers lack capacity to meet ESG standards, some may falsify records, conceal violations, or selectively report.
This behavior is not necessarily malicious—it often reflects structural constraints beyond their control.
Opportunities for Upgrading
ESG can also help peripheral firms upgrade capabilities:
Cleaner production methods
Enhanced worker conditions
Certifications that increase competitiveness
Access to sustainability-linked financing
Therefore, ESG diffusion is both a mechanism of globalization and a potential lever for development.
4.6 ESG, Technology, and Strategic Integration
Technological innovation has become central to ESG institutionalization.
Digital Tools for ESG
Blockchain for supply-chain transparency
AI for emissions measurement
IoT sensors for energy management
Data analytics for ESG reporting
Digitalization enables more accurate, real-time sustainability information, which strengthens institutional pressures.
Strategic Integration
Firms that integrate ESG into strategy view it not as compliance but as:
A driver of product innovation
A tool for long-term resilience
A risk mitigation framework
A governance enhancement
Examples include low-carbon product redesign, circular economy models, and AI-based risk tracking.
ESG and Organizational Resilience
Leading research suggests firms with strong ESG governance weather crises—economic, environmental, or social—more effectively.
4.7 Symbolic vs. Substantive ESG: The Ongoing Tension
Despite institutionalization, ESG remains contested:
Symbolic ESG
Lengthy sustainability reports
Photo-friendly CSR campaigns
Overstated environmental claims
Minimal operational change
Substantive ESG
Genuine emissions reduction
Inclusive labour practices
Ethical supply-chain transformation
Governance and anti-corruption reforms
Why Symbolic ESG Appears
Symbolic actions arise when:
Regulations focus on disclosures instead of impact
Investors rely on simplistic ESG ratings
Firms face resource constraints
Leadership adopts ESG for appearance
True institutionalization requires governance structures that cannot be easily decoupled from core practices.
5. Findings and Implications
5.1 Key Findings
1. ESG has become a global norm of corporate legitimacy.
No major firm can ignore ESG without risking reputational or financial consequences.
2. ESG functions as symbolic, social, economic, and ethical capital.
These capital forms influence competitive positions in the corporate field.
3. Institutionalization is uneven across regions.
Core firms shape ESG expectations; peripheral firms face compliance burdens.
4. Symbolic compliance remains a significant issue.
Institutional pressures encourage reporting but not always transformation.
5. Technology accelerates institutionalization.
Digital tools enhance monitoring, transparency, and governance.
5.2 Managerial Implications
Managers must:
Integrate ESG into long-term strategy
Invest in data systems and digital tools
Establish strong governance structures
Ensure ESG responsibilities are embedded across roles
Avoid greenwashing by focusing on measurable impact
5.3 Policymaker Implications
Policymakers should:
Ensure alignment between ESG reporting and real outcomes
Support SMEs and suppliers in developing economies
Encourage independent assurance of ESG data
Balance disclosure with impact-oriented regulation
5.4 Implications for Emerging Markets
Emerging-market firms can strategically use ESG to:
Upgrade value-chain positions
Attract investment
Differentiate themselves
Build long-term resilience
But they require support through capacity building, financing, and knowledge transfer.
6. Conclusion
The institutionalization of ESG marks a profound evolution in global business strategy. ESG has moved from a peripheral ethical concern to a dominant framework shaping corporate legitimacy, innovation, governance, and global value-chain relations. This transformation is driven by multilayered institutional pressures, the rise of ESG expertise, and the strategic pursuit of symbolic and ethical capital.
Yet, ESG remains uneven—strongly integrated in core economies, unevenly applied in emerging markets, and sometimes reduced to symbolic compliance. Whether ESG ultimately contributes to global sustainability and social justice depends on how firms, policymakers, investors, and civil society navigate the tensions between economic interests, ethical responsibilities, and global inequalities.
ESG is no longer optional. It is part of the architecture of modern capitalism. The future challenge is ensuring that its institutionalization leads not only to better reporting but to genuine transformation—environmental protection, social equity, and ethical governance embedded at the heart of global business.
Hashtags
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