A QUANTITATIVE ANALYSIS OF ESG PERFORMANCE AND ITS EFFECTS ON FINANCIAL PERFORMANCE

Abstract

Recently, the Environmental, Social, and Governance (ESG) goals are becoming a primary focus for companies worldwide. Studies have found positive and negative relationships between good ESG performance and the company’s financial performance. Hence, this research aims to explore the relationship between ESG and financial performance and find which balance sheet element has the most significant relationship with ESG performance. From a ranked list of 100 global companies, 46 firms had complete financial data for three years (from 2020 to 2022) and were eligible to be included in analysis. Using each company’s ESG rating and financial data, two statistical tests were performed to determine the relationship between ESG rating and financial performance. Although one significant relationship was found, both tests have shown weak positive and negative relationships. The hypothesis that ESG ranking will have a significant positive relationship with at least two of the five indicators used: net profits and operating revenue was not proven by the findings of this study.