ESG and Stock Performance: A Systematic Review of Heterogeneous Effects, Measurement Challenges, and Investment Implications

Environmental, Social, and Governance (ESG) factors have become increasingly influential in investment decision-making and corporate strategy. However, empirical evidence regarding the relationship between ESG performance and stock returns remains mixed and sometimes contradictory. This study synthesizes findings from 234 empirical studies examining ESG–financial performance relationships, focusing on measurement approaches and contextual moderating factors. The findings indicate that ESG integration is generally associated with neutral to moderately positive financial outcomes, primarily through enhanced risk management, reputational advantages, and crisis resilience. However, substantial inconsistencies arise due to methodological differences among ESG rating agencies and contextual factors such as regional institutional environments, sectoral characteristics, and market conditions. Developed markets typically exhibit stronger ESG–financial performance relationships compared with emerging markets, while sector-specific ESG materiality determines which ESG pillars influence financial outcomes. Overall, the evidence suggests that ESG effects on stock performance are highly context-dependent rather than universally positive. The study highlights the importance of standardized ESG measurement frameworks and context-sensitive investment strategies for improving the reliability and practical relevance of ESG research.