Interplay of ESG, Trust, and Financial Performance: Empirical Evidence From China’s Listed Companies

Abstract

The Environmental, Social, and Governance (ESG) paradigm is emerging as a dominant driver of sustainable economic growth. A growing number of firms are adopting ESG practices, seeking not only to align with contemporary trends but also to cultivate trust. Although ESG, trust, and financial performance are frequently examined in previous studies, the mechanisms underlying their interrelationships remain underexplored. This study analyzes data from 2,351 Chinese listed firms (2015–2022) using static panel model and two-stage dynamic panel generalized method of moments (GMM). The findings reveal that ESG performance significantly boosts financial outcomes through trust. The boosting effectiveness is highly associated with market attention, public attention and the temporal consistency of ESG performance. Further research indicates that non-state-owned enterprises, firms with direct contact between products and consumers, and firms in higher economic development regions are more likely to gain trust and financial performance through ESG performance. The study complements the existing understanding of mechanisms through which ESG impacts financial performance with the crucial role of trust as an informal institution in enhancing financial performance.