Environmental, social, and governance ratings and firm performance: Evidence from the Chinese stock market

Abstract

Environmental, social, and governance (ESG) evaluation criteria, which measure a company’s comprehensive performance in three dimensions of environmental, social responsibility, and corporate governance based on the company’s operational stability and long-term economic value, have developed rapidly. We report a statistical study that investigated whether there were differences in ESG ratings of listed companies in different industries and whether there were differences in market value and financial performance of listed companies with different ESG ratings. We selected all listed companies that have ESG ratings in the Chinese A-share stock market on January 31, 2021 and used Huazheng ESG ratings to reflect their comprehensive performance and sustainable development ability of listed companies. We found significant differences in ESG ratings of listed companies in different industries and significant differences in valuation and financial indicators of listed companies with different ESG ratings. Overall, the ESG ratings of companies in the financial industry are higher and more balanced than in other industries. Except for the finance industry, all other industries had lower overall ESG ratings with E ratings ranking the lowest among the 3 scores. Moreover, we found that listed companies with higher ESG ratings are prone to perform better financially.