Impact of ESG factors on profitability: an empirical analysis of JSE-listed firms in South Africa

The study examines the relationship between environmental, social, and governance (ESG) activity and firm shareholder wealth. We investigate whether ESG performance contributes to shareholder value creation and whether a firm’s investment in ESG might reduce shareholder returns in the short run. Despite a growing body of research on ESG performance, there remains a lack of consensus on its impact in emerging economies. Our sample includes a panel of 74 Johannesburg Stock Exchange (JSE)-listed firms in South Africa over the period 2010–2022. We estimate panel regressions for disaggregated data via different industry groupings. The disaggregated data analysis shows mixed results concerning the impact of ESG factors on returns on equity and share returns. For example, financial institutions were found to have a negative relationship between ESG performance and return on equity, whereas other non-financial companies have a positive relationship between ESG performance and return on equity. Different ESG factors influence returns on equity and share returns differently. This study contributes to the literature by offering fresh empirical evidence from South Africa and uncovering the nuanced industry-specific effects of ESG activities, thus providing valuable insights for policymakers, investors, and corporate decisionmakers.This study advances understanding of how environmental, social, and governance (ESG) performance influences firm profitability in an emerging market. Using evidence from JSE-listed firms, it reveals industry-specific effects, showing ESG can enhance or reduce returns depending on sector dynamics. The findings inform policymakers, investors, and corporate leaders seeking to integrate sustainability with financial performance in South Africa’s evolving economy.