The Impact of ESG on Financial Performance: An Empirical Analysis of Listed Companies in China

Abstract

Environmental, social, and governance (ESG) is gradually playing an increasingly vital role in financial markets. With the support of the Chinese government, most managers have placed a high priority on ESG. This paper, therefore, looks at whether ESG can reflect on the financial performance (ROA). The sample is selected from A-share listed companies in China between 2018-2022, which is used to test the mechanism. This paper also explores the link between ESG and financial performance by conducting robustness tests on another indicator, Tobin's Q, which helps to confirm the robustness of the model. The results of this paper show that overall ESG score, financial profitability, and firm value are significantly and positively related. The findings suggest that higher ESG scores can generate more financial returns and inform the formulation of relevant policies by companies and government agencies. Furthermore, it underscores the importance of integrating ESG considerations into investment strategies and corporate decision-making processes for sustainable economic growth.