ESG Performance and Financial Distress Risk Before and During the Covid-19 Pandemic

Abstract

Objective: We examine the relationship between environmental, social, and governance (ESG) performance indicators and the risk of financial distress (RDF) of companies listed in 75 countries from 2012 to 2021, while also assessing the moderating effect of the COVID-19 pandemic on this relationship.   Theoretical Framework: Based on literature linking ESG practices to financial benefits and risk reduction, including studies on ESG as a mitigator of financial distress and promoter of resilience during crises. Method: Binary Logistic Regression was used to estimate the relationship between ESG performance and RDF, with explanatory variables and controls based on existing literature. The sample included financial and ESG data extracted from the Refinitiv platform.   Results and Discussion: Companies with better ESG performance exhibited a lower risk of financial distress. The ESG-RDF relationship remained stable during the sample period, suggesting the benefits of ESG practices in normal periods but with no evidence of enhanced resilience during crises.   Research Implications: The results indicate that ESG practices can assist managers and investors in mitigating financial risks in both crisis and normal periods, contributing to strategic decisions and corporate policies focused on sustainability.   Originality/Value: The study innovates by exploring the moderating impact of COVID-19 on the ESG-RDF relationship, covering a broad international sample and providing insights into corporate resilience during crises.