ESG performance and executive compensation levels: an empirical study

Against the backdrop of China’s dual-carbon targets and the pursuit of high-quality economic development, the synergistic relationship between ESG (environmental, social, and governance) performance and corporate governance mechanisms has become increasingly prominent. Using Chinese A-share listed companies from 2020 to 2024 as the research sample, this paper employs panel-data multiple regression and mediating-effect models to empirically examine both the direct impact of managerial incentives on corporate financial performance and the underlying transmission mechanisms. The results show that (1) both equity-based and compensation-based managerial incentives exert a statistically significant positive effect on corporate financial performance; and (2) ESG performance plays a significant partial mediating role in the relationship between managerial incentives and corporate financial performance—specifically, a transmission pathway exists in which managerial incentives improve ESG performance, which in turn enhances financial performance. These findings remain robust after a series of robustness checks, including variable substitution. By adopting a sustainable-development perspective, the study extends the literature on the economic consequences of managerial incentives. It also supplies empirical evidence that can help firms incorporate ESG metrics into executive evaluation systems, refine incentive contract design, and assist regulators in improving relevant institutional frameworks.

The environmental, social, and governance (ESG) guidelines championed by sustainable development now stands as an indispensable pathway for enterprises aiming to unlock new economic growth potentials. However, the drive towards optimal ESG performance is often overshadowed by greenwashing or pseudo-ESG behaviours. The discrepancies in corporate ESG actions, both internally and across time, demonstrate that single-score metrics inadequately reflect the full dimensionality of a company's ESG commitments. This study adopts a dynamic lens to dissect the influence of temporal consistency in ESG performance on financial returns, probing the complex relationships among corporate ESG effectiveness, financial performance and enduring sustainability. Through analysis of data from 1,499 companies listed in China from 2010 to 2020, it is evident that sustained commitment to ESG responsibilities (temporal consistency) significantly enhances financial performance. The interplay between a company's ESG performance and its temporal consistency is a substitutive dynamic in impacting financial outcomes. Furthermore, when considering the environmental attributes of companies, the economic advantages garnered from ESG performance in highly polluting firms are notably less pronounced than in those that are less polluting. Our research scrutinises the multifaceted behavioural attributes behind ESG scores and emphasises the necessity of maintaining these behaviours consistently over time, establishing sustainability as a pivotal aspect of corporate ESG integrity.

Purpose: This paper re-examines the overall and pillar-level impact of the envi-ronmental, social, and governance (ESG) performance on the financial perfor-mance of companies listed in the Italian Stock Exchange market. By using the seminal paper by Velte (2017) – which focused on the German context – as the base comparison, we also test the moderating role of a firm's characteristics on that association. Design/methodology/approach: We analyze data on companies listed in the Ital-ian Stock Exchange from 2010 to 2022, sourced from the Refinitiv Eikon plat-form, for a total of 650 firm-year observations. Correlation and regression anal-yses are conducted to evaluate the link between ESG and a series of financial per-formance indicators including the return on assets (ROA) and Tobin's Q ratios. Findings: While neutral results are found for ROA, this study reveals that ESG per-formance has a positive impact on Tobin's Q, in contrast to what was found by Velte (2017). However, we confirm that the governance pillar exerts the most sig-nificant effect on Tobin's Q. Furthermore, the analysis of the firms' characteristics as moderating factors reveals that the risk and financial leverage of a company negatively influence the relationship between ESG performance and financial per-formance. Originality/value: This study contributes to the empirical literature on the associ-ation between ESG performance and financial performance by re-examining the study by Velte (2017) for a different period and different context. Moreover, we test for the moderating effect of the firms' characteristics on the relationship be-tween ESG and financial performance.

This research aims to investigate the processes for using digital finance to address the sustainability triple-bottom-line challenge, as digital finance is essential for attaining sustainability. Within the context of digital finance, this article investigates the inner workings of the relationship between financial performance and ESG (environmental, social, and governance) factors. Indirectly improving both short- and long-term financial success for organizations, digital finance promotes ESG performance, according to the research. Furthermore, the key enabler for ESG and short-term financial success is the depth of digital finance adoption. According to the results of the mechanism study, improving green innovation and bolstering digital transformation would strengthen the favorable correlation between digital finance and ESG. Furthermore, according to heterogeneity study, big businesses and SOEs (state-owned enterprises) have a stronger positive effect on ESG and financial performance when it comes to digital finance use depth, but small firms and non-SOEs have a stronger positive effect on ESG when it comes to coverage breadth. By outlining potential avenues for sustainable behavior, this article deepens our understanding of digital money.

Purpose This paper aims to examine the relationship between human rights practices and firm market and financial performance and the moderating role of Environmental, Social and Governance (ESG) practices. Design/methodology/approach The authors use ordinary least squares regression as a baseline methodology on US-listed firms from 2002 to 2023 and generalized method of moments estimation to account for endogeneity concerns. Findings The results indicate that firms’ human rights practices are significantly associated with market performance and return on assets. Additionally, ESG practices significantly moderate the relationship between human rights practices and firm performance. Human rights performance has a greater impact on market performance when moderated by ESG practices. Research limitations/implications This study contributes to the academic discourse by exploring the complex relationship between human rights and ESG performance. Identifying human rights practices as a social cost has intrinsic value for firms, driving toward desirable levels of human rights practices within corporate governance systems, consistent with stakeholder and social exchange theories. Originality/value This study provides novel insights into the interactive effects of human rights and ESG factors on firms’ market and financial performance, offering a deeper understanding of how these elements collectively shape corporate outcomes.

The effect of bond ownership structure on ESG performance

Purpose This study examines how digital transformation amplifies the effect of environmental, social and governance (ESG) performance on innovation, market competitiveness and financial performance in European multinational firms operating in Ghana. Design/methodology/approach Relying on the resource-based view and dynamic capability theory, we designed a model to assess a serial mediation to explain how ESG performance, innovation and market competitiveness can connect digital transformation to enhance financial performance. Data were collected from 340 senior and middle-level managers from European multinational firms in Ghana and employed structural equation modeling and the Sobel test for data analysis. Findings The study finds that digital transformation significantly enhances ESG performance. ESG performance positively influences innovation, market competitiveness and financial performance. Additionally, ESG performance has indirect positive effects on financial performance through innovation and market competitiveness, highlighting the importance of digital transformation in driving these outcomes. Practical implications The findings provide insights for managers, emphasizing the need to integrate digital transformation and ESG strategies to foster innovation and competitiveness, especially in emerging economies. Originality/value This research contributes to the growing literature on digital transformation and ESG by demonstrating their combined impact on business outcomes in an emerging market context. It offers a new framework for understanding how sustainability-driven strategies, enabled by digital transformation, can generate both economic and societal value.

The most widely applied indicators for sustainability are the Environmental, Social, and Governance (ESG) indicators, commonly used in academia and practice. However, these metrics lack standardization, resulting in potential discrepancies in performance assessments from different ESG rating agencies, referred to as ESG rating disagreement in the literature. Using ESG ratings from three different data providers for a sample of firms in the MSCI All Country Index for 2020, we calculated the ESG rating disagreement between Sustainalytics, Refinitv, and MSCI ESG scores. We applied quantile regression and provided evidence of a positive relationship between ESG rating disagreement and firm financial performance. Our findings contribute to a better understanding companies’ ESG performance and the relationship between ESG performance and financial performance.

Rising concerns around environmental and social issues have led to a heightened investor focus on the ESG performance of corporations. This attention underscores the increasing relevance of ESG considerations in the decision-making processes of investors. However, as ESG investments have risen in popularity, there has also been an increase in contradictory voices. The purpose of this article is to analyze the intricate landscape of ESG investments from the perspective of investors. It aims to shed light on the implications of corporate ESG responses and how investors incorporate ESG parameters into their investment portfolios. The study reveals specific challenges namely: (1) Corporations incurring short-term costs for making transformations affecting their stability, consequently leading to possible reductions in investors' short-term returns; (2) Corporations potentially misleading investors through greenwashing strategies to enhance their ESG portrayal; (3) Requiring investors to possess comprehensive industry knowledge when incorporating ESG in risk assessment thereby adding to time constraints; (4) Existing discrepancies in ESG disclosure standards leading to inconsistencies in ESG ratings given by different agencies; (5) Tracing corporate ESG performance being complicated by its strong links to both the size and financial performance of the corporation; (6) Incorporating ESG factors into investment portfolios could introduce tracking errors and potentially compromise portfolio diversification. Therefore, it is necessary to advocate stricter regulations around ESG disclosures, refining reporting standards to enhance transparency and comparability. Additionally, there is a call for further research to better comprehend the intricate relationship between ESG and financial performance.

Despite the growth in the supply of socially responsible investment products, the weight of environmental, social and governance (ESG) factors in the decisions of mutual fund investors remains under-researched. We conducted a study relating fund flows to past returns, ESG performance and other financial variables using data from 3,767 US mutual funds from 2015 to 2021. First, we aimed to assess the importance of ESG performance in investment decisions. Next, we studied whether ESG performance is increasingly important or has reached its limit. Finally, we developed decisional models to predict the flows raised by each investment fund, its financial return and ESG performance. We used logistic regression, neural networks, random forest and gradient boosting decision trees. We found that the investors consider ESG performance, but the factors that matter most are past growth, mutual fund fees and past returns. Our models predicted the money raised by the funds, obtaining accuracy rates of around 70%. In addition to confirming that “past financial return does not guarantee future financial return,” we found that “past ESG performance guarantees future ESG performance,” which may be of interest to socially responsible investors.

This paper selects 9236 sample data from 2309 listed companies in China.We construct the itermediary effect model and test the heterogeneity of enterprises according to ownership nature and enterprises in different regions. The results show that the better the ESG performance, the higher the financial performance of listed companies; Institutional investor shareholding plays a partial mediating role between ESG performance and financial performance; The influence of ESG performance on corporate financial performance is heterogeneous. In state-owned enterprises, the influence of ESG performance on corporate financial performance is not significant; In non-state-owned enterprises, ESG performance has a significant impact on financial performance. In the eastern part of China, ESG performance can significantly promote the improvement of financial performance, while in the central and western parts of China, ESG performance has no significant impact on financial performance. On this basis, this paper puts forward relevant suggestions that listed companies in China should strengthen ESG construction.

Within the framework of sustainable investment, the role of corporate engagement in Environmental, Social, and Governance (ESG) aspects has progressively garnered significant public interest. This study investigates the impact of corporate ESG performance on financial outcomes, utilizing constituent firms of the China CSI 300 Index as research samples. The ESG ratings from SynTao Green Finance serve as the proxy for corporate ESG performance, while Return on Equity (ROE) is employed to measure financial performance. Utilizing multiple linear regression analysis supplemented with robustness tests and sectoral differentiation assessments, the empirical results demonstrate that enhanced ESG performance significantly and positively correlates with corporate financial metrics, with the findings maintaining robust consistency across model specifications. Heterogeneity analysis reveals differentiated effects across industries, particularly noting that ESG initiatives in non-manufacturing enterprises exhibit more pronounced financial impacts compared to their manufacturing counterparts. These empirical insights provide valuable references for corporate strategic planning and institutional investors’ portfolio allocation decisions in sustainable finance practices.

The purpose of this research paper is to explore the connection between Corporate Governance, Environmental, Social and Governance (ESG), Audit Committee (AC) and Financial Performance in European Investment Holding Companies. This paper aims to understand whether there is a correlation between these elements. The study answers the following research question: "What is the impact of corporate governance indicators, ESG and financial performance on investments in public holding companies in Europe?" Our findings reveal significant correlations between corporate governance structures and financial performance metrics, as well as the influence of ESG ratings on financial performance and corporate governance. Additionally, we identify the effects of audit committee characteristics on financial performance and ESG outcomes. The reported data is collected from a sample of companies included in the Refinitiv Eikon Database and analysed using a panel data analysis at both regional and industry level. The sample is composed of 228 European Companies, covering a period of 4 years, from 2019-2022. I chose this because it includes the impact of the pandemic and the post-pandemic recovery period, providing insight into the adaptability and resilience of companies in the face of major economic challenges.This research contributes to a deeper understanding of the dynamics between corporate governance, ESG practices and financial performance, providing valuable insights for investors, managers and regulators aiming to navigate sustainable investment strategies in the European market. This sample is considered large enough to provide meaningful data and draw relevant conclusions. Companies from various European countries were included to reflect the diversity of the market and to analyse variations in governance and ESG practices in different national contexts. The focus on public holding companies provides a specific perspective on how these entities manage corporate governance and ESG, given their importance in the European economy. The selection of the sample was based on the availability of financial and corporate governance data to ensure the reliability and validity of the analysis. This data will be used to investigate how governance and ESG practices influence companies' financial performance, thus providing important insights for understanding the relationship between these aspects within the European market.

This study explored the effect of environmental, social and governance (ESG) performance on the financial performance of Indian firms, with audit committee independence serving as a moderating variable. Utilising quantitative methods and secondary data, the study analysed 91 Indian firms from 2018 to 2022. The research drew upon legitimacy, and agency theories, employing random and fixed effect panel data modelling for analysis. The findings indicate that ESG performance and its components have no impact on FP (measured by ROA), while ESG performance and individual performance of environmental and governance has a negative and significant impact on the financial performance (measured by Tobin's Q), whereas the social performance has no impact on TQ. Moreover, the independent audit committee does not moderate the relationship between ESGP and its components and firm performance. Overall, this study is novel within the Indian context. It enhances the understanding that ESG performance has a negative or negligible impact on financial performance. This relationship is so strong that even an independent audit committee cannot moderate it.

This paper synthesizes the research trends both domestically and internationally on the impact of corporate Environmental, Social, and Governance (ESG) performance on its financial performance. The majority of the studies support a positive correlation between ESG and financial performance, suggesting that ESG practices contribute to sustainable development and enhance corporate financial outcomes. However, the relationship is complex and may be influenced by a variety of factors, including the measurement methods of indicators, the country or region of the research subjects, and the type of industry, leading to divergent conclusions in existing studies. By reviewing the relationship between ESG performance and financial performance, this paper organizes the differences in research subjects and results behind various conclusions, aiming to provide potential research paths for future studies.