SUPPLEMENTARY MATERIAL
, Merle Ojasoo , Karin Reinhold This study examines the drivers, stakeholder engagement mechanisms, and challenges influencing the adoption of environmental, social, and governance (ESG) strategies among European Union-based companies. Using semi-structured interviews with 16 firms across diverse sectors, supplemented by sustainability report analysis, the research applies stakeholder theory and institutional theory to explain ESG adoption patterns. Findings reveal that ESG adoption is primarily driven by external forces, including regulatory requirements, market trends, and stakeholder expectations, with internal factors such as corporate values also playing a role. Notably, only one-third of the sampled companies have established formal stakeholder engagement mechanisms, suggesting a potential decoupling between ESG reporting obligations and the substantive integration of stakeholder voice into strategic decision- making. Stakeholder engagement practices vary widely, with formal mechanisms more common in larger, publicly listed organizations. Key challenges include regulatory com plexity, data-collection difficulties, cost pressures, and limited stakeholder awareness. The study contributes to understanding how stakeholder engagement and expectations shape ESG adoption, highlights persistent ESG challenges across industries, and identifies a “middle-squeeze” dynamic whereby medium-sized firms face disproportionate regulatory burden relative to their capacity. Insights offer guidance for policymakers and managers seeking to align sustainability strategies with both institutional requirements and stakeholder demands.
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