The Impact of ESG Performance on Corporate Financial Performance: Evidence from Global Listed Companies

Abstract

Corporate sustainability has emerged as a central concern for investors, managers, and policymakers seeking to understand the drivers of long-term financial value creation. This study empirically examines the relationship between Environmental, Social, and Governance (ESG) performance and corporate financial performance (CFP) among globally listed companies. Drawing on stakeholder theory (Freeman, 1984) and the resource-based view (Barney, 1991), the study employs two complementary datasets — a cross-industry sample of 731 publicly listed firms and a focused sample of 30 Dow Jones Industrial Average constituents — to test three theoretically derived hypotheses using Ordinary Least Squares (OLS) regression analysis. Financial performance is operationalized through price-to-earnings (P/E), price-to-book (P/B), and debt-to-equity (D/E) ratios. Results reveal a significant positive association between aggregate ESG performance and market-based valuation indicators, with the environmental pillar emerging as the strongest individual predictor of both P/E (β = 1.312, p < 0.001) and P/B ratios (β = 0.144, p < 0.01). Robustness checks using the Dow 30 dataset confirm these findings (R² = 0.287, p = 0.002). No significant relationship is detected between ESG scores and leverage. These findings contribute to the growing empirical consensus that sustainability investment is broadly compatible with — and in many cases supportive of — superior financial performance, with important implications for ESG-oriented investment strategy and corporate governance practice.