The Mediating Role of ESG in the Relationship between FinTech Adoption and Financial Performance: Evidence from Emerging Economy

This study examines the mediating role of Environmental, Social, and Governance (ESG) performance in the relationship between FinTech adoption and firm financial performance in Pakistan over the period 2014–2023. Using panel data from non-financial firms listed on Pakistan Stock Exchange, the research investigates whether FinTech adoption enhances financial performance directly or indirectly through improvements in ESG practices. FinTech adoption is proxied by digital financial services usage while ESG performance is measured using ESG Index. Financial performance is captured using return on assets (ROA), reflecting firms’ operational efficiency. The study employs panel regression techniques and mediation analysis to test the proposed relationships. The empirical findings indicate that FinTech adoption has a positive and significant effect on ESG performance, suggesting that digital financial innovation improves transparency, governance quality, and sustainability practices. ESG performance is also found to have a significant positive impact on ROA. Furthermore, the results confirm that ESG partially mediates the relationship between FinTech adoption and financial performance, indicating that FinTech contributes to firm performance both directly and indirectly through ESG improvements. The study contributes to the growing literature on sustainable finance by providing empirical evidence from Pakistan. The findings highlight the importance of integrating FinTech strategies with ESG initiatives to enhance firm efficiency and achieve sustainable financial performance.