["Business Strategy and the Environment, EarlyView. ", "\nABSTRACT\nAlthough ESG controversies are on the rise, research investigating them yields contradictory findings. The paper provides resolutions to the debate through investigating (a) how ESG controversies influence firms' short‐term and long‐term financial performance; (b) how firms navigate ESG controversies' effect; and (c) how ESG controversies influence firms' nonfinancial performance. Relying on legitimacy theory, the paper theorizes the relationships and, using 2992 and 2970 firm‐year observations, respectively, finds that ESG controversies negatively influence a firm's short‐ and long‐term performance; corporate ESG communication and environmental innovation reduce these effects. Although ESG controversies negatively affect ESG performance, they positively affect carbon emissions, customer complaint controversies, and responsible marketing controversies. To regain legitimacy lost through ESG controversies, firms can invest in supplier ESG training, responsible product development, and CSR committees. The paper contributes to the sustainable business strategy literature and guides managers in managing controversies for a better business environment.\n"]