The Impact of ESG Performance on the Financial Indicators of United Kingdom Financial Firms, 2015 to 2024

Abstract

This study investigates whether environmental, social, and governance (ESG) performance improves the financial outcomes of publicly listed financial firms in the United Kingdom (UK) between 2015 and 2024. It addresses a key gap in the literature by focusing on a single, highly regulated sector that plays a systemic role in capital allocation. Drawing upon panel data from Refinitiv ESG and financial indicators such as return on assets (ROA), return on equity (ROE), and Tobin’s Q, the study employs fixed effects regression models supported by robustness checks using system GMM estimation and subsample analysis. The findings indicate that ESG performance has a significant positive impact on ROA and ROE, suggesting gains in both operational efficiency and shareholder profitability. In contrast, Tobin’s Q is unaffected by ESG on its own but becomes significant when moderated by analyst coverage, underscoring the importance of credibility and external validation. Disaggregated analysis reveals that the environmental and governance pillars are the strongest drivers of financial outcomes, whereas the social pillar primarily becomes relevant during crises such as COVID-19. Overall, the study contributes to academic debates, informs regulatory policy, and provides practical insights for firms and investors by showing that ESG creates measurable value when supported by credible communication and authentic practices.