Impact of Environmental, Social, and Governance Parameters on Financial Performance of Firms: A Cross-Country Analysis
The investor community has emphasized the role of firms’ environmental, social, and
governance (ESG) practices in the last few years. The present study is motivated by existing
studies that have not provided conclusive evidence on the relationship between a firm’s
ESG practices and financial performance and whether a country’s economic development
status influences this relationship. This study used data from 1917 non-financial firms
across the top 13 countries over 10 years to investigate. The results conclusively indicate
that the ESG score, by and large, positively impacts firms’ financial performance. The
further examination of the results shows that while the impact is positive in the context of
developed countries, in the case of firms from emerging economies such as China and India,
the ESG score does not impact their financial performance, indicating that for emerging
economies, growth takes precedence over ESG concerns. Overall, this study concludes that
a country’s economic development status does influence the relationship between a firm’s
ESG practices and financial performance.