Corporate Environmental, Social, and Governance Performance: The Impacts on Financial Returns, Business Model Innovation, and Social Transformation

Корпоративные экологические, социальные и управленческие показатели: влияние на финансовую доходность, инновации бизнес-моделей и социальную трансформацию
Elisa Gilardi, Stanislav Shmelev
2025-02-05

ESG performancebusiness model innovationcorporate sustainabilityfinancial returnssocial transformation
Corporate sustainability performance becomes the central element in many current business developments: the total value of ESG investment grows, more and more clients want to invest in projects that deliver more than the pure financial return, companies are innovating and transforming their business models, and adopting the B-Corp values. Environmental and wider societal impact becomes the central focus of the businesses that want to become the force for good. This article adopts an empirical approach and builds an ESG index of corporate performance based on eight critical metrics representing the economic, social, and environmental dimensions under varying policy priorities. Furthermore, it investigates correlations between these aggregate ESG indices and share prices as well as return on investment, or ROE, of companies. The article goes on to investigate empirically the correlation between employees/turnover, diversity, CO2 emissions, waste generation, and water use of companies and share prices and ROE metrics, respectively. The reasons for divergence between correlations of sustainability performance indicators with share prices, ROE, and profits/turnover are discussed in detail, with particular attention drawn to the reasons why diversity might matter more for the share prices than ROE and why waste generation, water use, and CO2 emissions might still be poorly reflected in the ROE while some of these metrics have a significant connection with the profit/turnover ratio. The article will undoubtedly be of interest to ESG fund managers, investors, corporate sustainability officers, and policymakers.
1
It empirically examines relationships between aggregate ESG indices and companies’ share prices, return on equity, and investment returns.
2
Sustainability indicators show differing relationships with share prices, ROE, and profit-to-turnover ratios; diversity may be more relevant to share prices than ROE.
3
The analysis separately evaluates how employee-related measures, turnover, diversity, CO2 emissions, waste generation, and water use correlate with share prices and ROE.
4
The study develops an aggregate ESG performance index comprising eight economic, social, and environmental metrics under varying policy priorities.
5
Waste generation, water use, and CO2 emissions may remain weakly reflected in ROE, although some demonstrate significant associations with profit-to-turnover ratios.

Corporate ESG sustainability performance and its relationship to companies’ financial and organizational outcomes

The relationships of aggregate and individual ESG metrics with share prices, return on equity (ROE), profitability/turnover, business model innovation, and social transformation

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2025-02-05
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Authors
Elisa Gilardi
Stanislav Shmelev
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