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The Effect of ESG Activities on Financial Performance during the COVID-19 Pandemic—Evidence from Korea

Author

Listed:
  • Juhee Hwang

    (School of Business Administration, Kyungpook National University, 80, Daehak-ro, Buk-gu, Daegu 41566, Korea)

  • Hyuna Kim

    (School of Business Administration, Kyungpook National University, 80, Daehak-ro, Buk-gu, Daegu 41566, Korea)

  • Dongjin Jung

    (School of Business Administration, Kyungpook National University, 80, Daehak-ro, Buk-gu, Daegu 41566, Korea)

Abstract

This study examines the effect of a firm’s environmental, social, and governance (ESG) activities on its financial performance during the acute uncertainty caused by the COVID-19 pandemic. Due to the COVID-19 pandemic, most Korean firms suffered unexpected difficulties in their business activities in early 2020, and their financial performance deteriorated significantly. The purpose of this study is to empirically analyze whether a firm’s ESG activities affect its financial performance during a business crisis. The results show that, in the first quarter of 2020, when the impact of the COVID-19 pandemic occurred, firms’ earnings dropped significantly; however, we found that the higher the performance of ESG activities, the smaller the decline in earnings. The results imply that, in an environment of uncertainty, the performance of a firm’s ESG activities is reflected in its financial outcomes. This result implies that trust and bond between firms and stakeholders, as formed through investments in social capital, are rewarded when the overall level of sustainability in markets is negatively impacted. In addition, our results suggest that the performance of nonfinancial activities is useful information for stakeholders’ decision making in relation to market uncertainty.

Suggested Citation

  • Juhee Hwang & Hyuna Kim & Dongjin Jung, 2021. "The Effect of ESG Activities on Financial Performance during the COVID-19 Pandemic—Evidence from Korea," Sustainability, MDPI, vol. 13(20), pages 1-17, October.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:20:p:11362-:d:656389
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    References listed on IDEAS

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    3. Ana Maria Alexie, 2022. "Trends in corporate governance practices at the level of companies listed on the Bucharest Stock Exchange," Journal of Financial Studies, Institute of Financial Studies, vol. 12(7), pages 25-37, May.
    4. Yahya, Habeeb, 2023. "The role of ESG performance in firms' resilience during the COVID-19 pandemic: Evidence from Nordic firms," Global Finance Journal, Elsevier, vol. 58(C).
    5. Jarosław Wenancjusz Przybytniowski & Stanisław Borkowski & Andrzej Grzebieniak & Petro Garasyim & Paweł Dziekański & Anna Ciesielska, 2022. "Social, Economic, and Financial Aspects of Modelling Sustainable Growth in the Irresponsible World during COVID-19 Pandemic," Sustainability, MDPI, vol. 14(19), pages 1-16, September.
    6. Blaž Frešer, 2022. "Multidimensional Model of High-Growth Companies: Do COVID-19 and the Ukraine–Russia Crisis Lead to Differences?," Sustainability, MDPI, vol. 14(22), pages 1-25, November.
    7. Antonios Persakis, 2024. "The impact of climate policy uncertainty on ESG performance, carbon emission intensity and firm performance: evidence from Fortune 1000 firms," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(9), pages 24031-24081, September.

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