The Influence of ESG Factors on the Firm Performance

Abstract

In the face of escalating global environmental crises, governments worldwide are heightening their expectations for corporate social responsibility, urging businesses to adopt eco-friendly production practices. Consequently, the emergent Environmental, Social, and Governance (ESG) rating system has garnered increasing significance within corporate annual reports. This article undertakes a comprehensive review of prior research examining the correlation between ESG performance and corporate performance. Existing studies have consistently demonstrated the substantial positive impact of ESG performance on enterprises, particularly in terms of bolstering risk management practices and meeting investor expectations. However, there is also evidence indicating a nuanced negative effect on small and medium-sized enterprises (SMEs) due to associated costs. Drawing from a synthesis of these previous findings, this paper delves deeper into the intricacies of this relationship, considering additional factors encompassing management strategies, economic dynamics, and beyond. By expanding our understanding of how ESG performance intersects with firm performance, this study seeks to offer valuable insights for businesses navigating the evolving landscape of corporate responsibility and sustainability.