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Corporate Environmental, Social, and Governance Performance: The Impacts on Financial Returns, Business Model Innovation, and Social Transformation

Author

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  • Stanislav Edward Shmelev

    (Environment Europe Foundation, Fluwelen Burgwal 58, The Hague Humanity Hub, 2511 CJ The Hague, The Netherlands)

  • Elisa Gilardi

    (SAA School of Management, University of Turin, Via Ventimiglia, 115, 10126 Torino, Italy)

Abstract

Corporate sustainability performance becomes the central element in many current business developments: the total value of ESG investment grows, more and more clients want to invest in projects that deliver more than the pure financial return, companies are innovating and transforming their business models, and adopting the B-Corp values. Environmental and wider societal impact becomes the central focus of the businesses that want to become the force for good. This article adopts an empirical approach and builds an ESG index of corporate performance based on eight critical metrics representing the economic, social, and environmental dimensions under varying policy priorities. Furthermore, it investigates correlations between these aggregate ESG indices and share prices as well as return on investment, or ROE, of companies. The article goes on to investigate empirically the correlation between employees/turnover, diversity, CO 2 emissions, waste generation, and water use of companies and share prices and ROE metrics, respectively. The reasons for divergence between correlations of sustainability performance indicators with share prices, ROE, and profits/turnover are discussed in detail, with particular attention drawn to the reasons why diversity might matter more for the share prices than ROE and why waste generation, water use, and CO 2 emissions might still be poorly reflected in the ROE while some of these metrics have a significant connection with the profit/turnover ratio. The article will undoubtedly be of interest to ESG fund managers, investors, corporate sustainability officers, and policymakers.

Suggested Citation

  • Stanislav Edward Shmelev & Elisa Gilardi, 2025. "Corporate Environmental, Social, and Governance Performance: The Impacts on Financial Returns, Business Model Innovation, and Social Transformation," Sustainability, MDPI, vol. 17(3), pages 1-41, February.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:3:p:1286-:d:1584105
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    References listed on IDEAS

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    1. María Mar Miralles-Quirós & José Luis Miralles-Quirós & Luis Miguel Valente Gonçalves, 2018. "The Value Relevance of Environmental, Social, and Governance Performance: The Brazilian Case," Sustainability, MDPI, vol. 10(3), pages 1-15, February.
    2. Alexandre Clément & Élisabeth Robinot & Léo Trespeuch, 2023. "The use of ESG scores in academic literature: a systematic literature review," Journal of Enterprising Communities: People and Places in the Global Economy, Emerald Group Publishing Limited, vol. 19(1), pages 92-110, March.
    3. George Serafeim & Aaron Yoon, 2022. "Which Corporate ESG News Does the Market React To?," Financial Analysts Journal, Taylor & Francis Journals, vol. 78(1), pages 59-78, January.
    4. Sakis Kotsantonis & Chris Pinney & George Serafeim, 2016. "ESG Integration in Investment Management: Myths and Realities," Journal of Applied Corporate Finance, Morgan Stanley, vol. 28(2), pages 10-16, June.
    5. Liliya Babynina & Larisa Kartashova & Dmitriy Busalov & Karina Chernitsova & Felix Akhmedov, 2023. "Effective ESG Transformation of Russian Companies in the New Environment: Current Challenges and Priorities," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 12, November.
    6. Stanislav E. Shmelev & Nathan Lefievre & Nadim Saadi & Irina A. Shmeleva, 2023. "Interdisciplinary Linkages among Sustainability Dimensions in the Context of European Cities and Regions Research," Sustainability, MDPI, vol. 15(20), pages 1-28, October.
    7. Gerhard Halbritter & Gregor Dorfleitner, 2015. "The wages of social responsibility — where are they? A critical review of ESG investing," Review of Financial Economics, John Wiley & Sons, vol. 26(1), pages 25-35, September.
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    Cited by:

    1. Joan R. Sanchis & Vanessa Campos & Ana T. Ejarque, 2025. "A Proposed Typology for the Validation of Corporate Sustainability," Sustainability, MDPI, vol. 17(16), pages 1-23, August.
    2. Stanislav Edward Shmelev, 2025. "Biodiversity Offset Schemes for Indonesia: Pro et Contra," Sustainability, MDPI, vol. 17(14), pages 1-38, July.
    3. Medalit Villegas-Casaverde & Alfredo Prado-Canchari & Katia Choque-Quispe & John Peter Aguirre-Landa & Henrry Wilfredo Agreda-Cerna & Delma Diana Reynoso-Canicani & Edwin Mescco Cáceres & Rosa Gabriel, 2025. "High Andean Association Producers of Organic Quinoa: A Sustainability Study Based on Competitiveness and Performance," Sustainability, MDPI, vol. 17(9), pages 1-14, April.
    4. Javad Vasheghani Farahani & Horst Treiblmaier, 2025. "A Sustainability Assessment of a Blockchain-Secured Solar Energy Logger for Edge IoT Environments," Sustainability, MDPI, vol. 17(17), pages 1-31, September.

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