Title: The impact of ESG decoupling on the financial performance of SMEs: evidence from Korean SMEs

Authors: Eun-Young Kim; Jae-Eun Lee; Yong-Seok Choi; Hyun-Woo Kim; Ga-Rog Han

Addresses: RISE Program Management Unit, Sunchon National University, Suncheon 57922, South Korea ' Department of International Trade, Sunchon National University, Suncheon 57922, South Korea ' Department of Logistics, Sunchon National University, Suncheon 57922, South Korea ' Department of Environmental Education, Sunchon National University, Suncheon 57922, South Korea ' RISE Program Management Unit, Chosun University, Gwangju 61452, South Korea

Abstract: Drawing on new institutionalism and legitimacy theory, this study conceptualises ESG decoupling as the gap between targeted and actual ESG activities in small and medium-sized enterprises (SMEs) and investigates its effects on financial performance. Using data from 127 Korean SMEs, the results reveal that environmental decoupling has no significant impact on financial performance, social decoupling negatively affects financial performance, while governance decoupling positively affects it. Theoretically, this research extends the decoupling concept to the ESG domain and provides empirical evidence of financial implications for SMEs. Practically, the findings suggest that SMEs should engage in genuine social initiatives to minimise the negative consequences of social decoupling, while setting ambitious governance targets that, when paired with strong managerial standards, may enhance financial performance.

Keywords: ESG decoupling; financial performance; Korean SMEs; legitimacy theory; theory of new institutionalism.

DOI: 10.1504/IJQET.2025.151232

International Journal of Quality Engineering and Technology, 2025 Vol.11 No.1, pp.71 - 91

Received: 02 Apr 2025
Accepted: 28 Jul 2025
Published online: 19 Jan 2026 *

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