Abstract
The benefits and advantages of the incorporation of ESG (Environmental, Social, Governing)-related policies have been discussed extensively. However, research articles focus not only on the socioecological aspects of Corporate Social Responsibility (CSR) but also on the underlying effects on a corporation’s corporate financial performance (CFP). In this regard, the current study aims to analyze the impact of ESG parameters on corporations’ financial stability. A sample size of 691 companies in North American countries was investigated in order to test the hypothesis that ESG has an effect on the likelihood of a company going bankrupt using the Ohlson O-score. This is conducted using regression models and the Pearson correlation coefficient. Furthermore, a follow-up hypothesis on the relationship between firm size and ESG is also tested in order to evaluate a tendency of corporate growth through ESG-based sustainable development. The results of the study conclude that the governing pillar of ESG factors has the highest positive impact on corporations’ financial success. Furthermore, the analysis conducted in the study with its sample size confirms the hypothesis that larger firms tend to have higher ESG scores.
Highlights
Published: 3 January 2022The Environmental, Social, and Governance (ESG) score is an innovational method of evaluating a company’s activities
The North American Industry Classification System (NAICS) sector name is provided for each country in order to provide clarity on the specific nature of company activities in these states (Table 1)
This study examined an array of companies’ success based on the ESG score
Summary
The Environmental, Social, and Governance (ESG) score is an innovational method of evaluating a company’s activities. It provides insight into the organization’s ability to uphold its Corporate Social Responsibility (CSR). The ESG score focuses not on financial reporting, which investors and managers are accustomed to using when making decisions, but statements on the corporation’s influence on the underlying pillars of the score. Whilst ESG reporting allows to conduct ethical investing, the implications of ESG piqued interest regarding its possible correlation with higher company financial performance (CFP), stock returns, and other financial aspects of the corporation. Many studies aim to conclude whether a firm connection between CFP and ESG can be determined [1,2,3]. Different methods are utilized in order to provide definitive results
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