Whether and How ESG Impacts on Corporate Financial Performance in the Yangtze River Delta of China

Abstract

ESG (Environmental, Social and Governance) is not only a comprehensive manifestation of sustainable development but also an influencing factor of economic benefits. This research focuses on evaluating the impact of environment (E), society (S) and corporate governance (G) on the corporate financial performance in China. As China is currently in the exploration stage of ESG, a socially approved ESG evaluation system has not yet been formed. This paper deliberately selected variables and composite methods for E, S and G and integrated them into the ESG index through learning from the western experience and Chinese actuality. Then, whether E, S, G and ESG have a significant positive impact on financial performance is evaluated through panel regression analysis based on a sample of 191 listed companies in the Yangtze River Delta of China from 2015 to 2020. The results show that E has a significant negative impact on corporate financial performance, G has a significant positive impact, and S has no significant impact. ESG performance has a less significant impact on accounting-based financial performance and no significant impact on market-based financial performance. This research will help understand the performance of ESG and promote ESG practices in China.