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How Do Corporate Environmental, Social, and Governance (ESG) Factors Affect Financial Performance?

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  • Xinxin Che

    (School of Finance, Dongbei University of Finance and Economics, Dalian 116025, China)

  • Chenhua Song

    (Department of Mechanical, Aerospace & Civil Engineering, The University of Manchester, Manchester M13 9PL, UK)

  • Jining Li

    (School of Finance, Dongbei University of Finance and Economics, Dalian 116025, China
    School of Economics and Law, University of Science and Technology Liaoning, Anshan 114051, China)

Abstract

Responsible investments are becoming increasingly relevant in stakeholder decision-making, propelled by the emphasis on sustainable development. Specifically, enterprises should acknowledge the significance of creating value for multiple shareholders based on the environment, society, and corporate governance. In this article, we contribute to the theoretical and empirical literature on corporate environmental, social, and governance (ESG) performance in China. This paper employs a two-way fixed-effect model to examine the influence of ESG activities on financial performance, focusing on 3268 Shanghai and Shenzhen A-share companies that have consistently participated in such activities from 2011 to 2022. The findings indicate that improvements in ESG practices positively influence corporate financial performance, with property rights and industry categorization moderating this relationship. Furthermore, agency cost, financing cost, social reputation, market power, and enterprise innovation partially mediate ESG performance and financial performance. This study encourages enterprises to integrate sustainable value creation into the national development strategy, thereby achieving harmonious economic and social development.

Suggested Citation

  • Xinxin Che & Chenhua Song & Jining Li, 2024. "How Do Corporate Environmental, Social, and Governance (ESG) Factors Affect Financial Performance?," Sustainability, MDPI, vol. 16(23), pages 1-23, November.
    • Handle: RePEc:gam:jsusta:v:16:y:2024:i:23:p:10347-:d:1529989
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    References listed on IDEAS

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    1. Marie, Mohamed & Qi, Baolei & Elgammal, Mohammed & Elnahass, Marwa, 2024. "A more sustainable future: Can politically connected CEOs spur the nexus between ESG performance and firm financial performance?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 96(C).
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    3. George Giannopoulos & Renate Victoria Kihle Fagernes & Mahmoud Elmarzouky & Kazi Abul Bashar Muhammad Afzal Hossain, 2022. "The ESG Disclosure and the Financial Performance of Norwegian Listed Firms," JRFM, MDPI, vol. 15(6), pages 1-16, May.
    4. Junwei Zeng & Yongsheng Qian & Fan Yin & Leipeng Zhu & Dejie Xu, 2022. "A multi-value cellular automata model for multi-lane traffic flow under lagrange coordinate," Computational and Mathematical Organization Theory, Springer, vol. 28(2), pages 178-192, June.
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    1. Ana Lorena Jiménez-Preciado & Miguel Ángel Martínez-García & José Carlos Trejo-García & Francisco Venegas-Martínez, 2025. "Short- and Long-Term Assessments of ESG Risk in Mexican Mortgage Institutions: Combining Expert Surveys, Radar Plot Visualization, and Cluster Analysis," Sustainability, MDPI, vol. 17(12), pages 1-29, June.

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