The Dual-Incentive Dilemma: How Competing ESG and Financial Performance Targets Shape Global Innovation Strategy

There's a really interesting conversation happening between sustainability and finance. Michalski (2025) shows that sustainable treasury management directly enhances financial performance. Qian and Yang (2023) find that state-owned equity participation boosts ESG performance, mediated by top management incentives. But we also have classic work like Chen et al. (2023) showing how equity incentives drive financial performance through "open source" and "cost reduction" pathways. The question that's missing is: what happens when these two incentive systems exist in the same firm?

This research would explore the "Dual-Incentive Dilemma." It would investigate how CEOs and top teams navigate having one set of incentives tied to traditional financial metrics (like ROA) and another tied to ESG goals (like carbon reduction or diversity scores). Building on the framework from Tang et al. (2025), which looked at how performance feedback shapes global R&D strategy, we could ask: Does a strong ESG incentive make a CEO more or less likely to invest in risky, long-term global R&D? Does it compete with the financial incentive, or does it create a more balanced, resilient strategy? This is a novel synthesis of corporate governance, sustainability, and international business strategy. Most studies look at one incentive type at a time; this idea recognizes the modern reality that executives are pulled in multiple directions and seeks to understand the strategic consequences of that tension.

References:

1. Reduction of Climate Risk as a Key to Business Performance – Framework for Sustainable Corporate Treasury Management (CTM). Grzegorz Michalski (2025). Econometrics.
2. State-Owned Equity Participation and Corporations’ ESG Performance in China: The Mediating Role of Top Management Incentives. Ting Qian, Caoyuan Yang (2023). Sustainability.
3. An empirical study of the relationship between management equity incentives and enterprise performance in the manufacturing industry. Meiqing Chen, Liezhi Shen, Yunxi Ling (2023). Academic Journal of Business & Management.
4. Wading the uncharted water: how firm’s global value chain R&D engagement shaped by domestic performance feedback and CEO incentives?. Linjia Tang, Yingying Guo, Zhi Lu, Ziyan Jiang, Jianfeng Zha (2025). Chinese Management Studies.