How does Environment, Social and Governance Affect the Financial Performance of Enterprises?

Abstract

Under the background of China’s economic structural transformation, the green and low-carbon economic development model draws the attention of politicians and academics. The low-carbon strategy provides a supportive political environment for the rapid development of ESG. However, research on the effect of ESG on enterprise financial performance is still insufficient. Using the data of A-share listed companies from 2011 to 2020, this paper examines the impact of ESG on corporate financial performance from the perspectives of ESG rating release and ESG level through Differences-in-Differences (DID) model and panel two-way fixed-effect model. Results show that the release of ESG indicators and the improvement of ESG level can significantly increase the enterprise financial performance. The role of ESG disclosure and level in promoting the enterprise financial performance is more significant in companies with less than 3 years of listing time and no Big Four audits. Furthermore, government intervention can inhibit the boosting effect of ESG on enterprise financial performance, while increased internet and marketization levels can reinforce that effect.