NEXUS BETWEEN ESG RATINGS AND FINANCIAL PERFORMANCE
DOI:
https://doi.org/10.5281/zenodo.15629012Keywords:
Tobin’s Q (TQ), Corporate Financial Performance (CFP), Corporate Social Responsibility (CSR), Environmental, Social and Governance (ESG), Return on Assets (ROA), Return on Equity (ROE).Abstract
The objective of this article is to establish a connection between a company's financial success and its efforts in environmental, social, and governance matters. The examination takes into account both the collective and individual aspects of ESG to evaluate how they impact the financial performance of corporations. The study used data from S&P 1500 index firms spanning from 2010 to 2021. To assess the correlation between ESG scores and financial performance metrics (Tobin’s and ROA), a fixed-effect regression model estimator was employed based on information from the Thompson Reuters Refinitiv database. The findings of the study indicate a considerable beneficial correlation between ESG rating and Tobin’s Q, an indicator of financial performance based on market value. When examined separately, the social pillar score had a significant positive influence on financial performance, whereas the environmental and governance pillars demonstrated moderate and negligible relationships. The research findings will contribute to improving understanding of the effects of investments in corporate sustainability. It provides valuable analysis for corporate and government bodies in optimizing the effects of their sustainability efforts. The results of the study will aid in enhancing comprehension of the impact of investments in corporate sustainability, delivering valuable insights for corporate and governmental organizations to enhance the effectiveness of their sustainability initiatives.
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