The Impact of ESG on Firm Risk and Financial Performance: A Systematic Literature Review

Abstract

As global interest in ESG has skyrocketed, research on the impact of ESG on firm risk and financial performance has also emerged as a trending area of investigation. The aim of this study is to furnish a thorough overview of existing research on the impact of ESG on firm risk and financial performance. We present a systematic literature review of recent published articles. To this end, 35 articles on ESG and firm risk and 120 articles on ESG and financial performance from January 2013 to September 2023 were reviewed. Findings reveal, first, research on the impact of ESG on firm risk and financial performance is increasingly gaining attention. Second, most of the research themes focus on idiosyncratic risk, systematic risk, stock price crash risk and default risk, while market-based and accounting-based financial performance is almost evenly split. Third, scholars have used diverse research methods but most of them use fixed effects of panel model. Moreover, scholars have not reached a consensus conclusion on this topic. For East Asia and ASEAN countries, the research methods employed are not yet sufficiently diverse. This paper comprehensively summarizes the research methods and subdivisions on this topic. This explores research gaps and provides insights for future research. In addition, this study provides a reference for East Asia and ASEAN countries to achieve sustainable economic growth and development.