IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v17y2025i3p1286-d1584105.html
   My bibliography  Save this article

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

Author

Listed:
  • Stanislav Edward Shmelev

    (Environment Europe Foundation, Fluwelen Burgwal 58, The Hague Humanity Hub, 2511 CJ The Hague, The Netherlands)

  • Elisa Gilardi

    (SAA School of Management, University of Turin, Via Ventimiglia, 115, 10126 Torino, Italy)

Abstract

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, CO 2 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 CO 2 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.

Suggested Citation

  • Stanislav Edward Shmelev & Elisa Gilardi, 2025. "Corporate Environmental, Social, and Governance Performance: The Impacts on Financial Returns, Business Model Innovation, and Social Transformation," Sustainability, MDPI, vol. 17(3), pages 1-41, February.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:3:p:1286-:d:1584105
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/17/3/1286/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/17/3/1286/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. George Serafeim & Aaron Yoon, 2022. "Which Corporate ESG News Does the Market React To?," Financial Analysts Journal, Taylor & Francis Journals, vol. 78(1), pages 59-78, January.
    2. Liliya Babynina & Larisa Kartashova & Dmitriy Busalov & Karina Chernitsova & Felix Akhmedov, 2023. "Effective ESG Transformation of Russian Companies in the New Environment: Current Challenges and Priorities," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 12, November.
    3. Sakis Kotsantonis & Chris Pinney & George Serafeim, 2016. "ESG Integration in Investment Management: Myths and Realities," Journal of Applied Corporate Finance, Morgan Stanley, vol. 28(2), pages 10-16, June.
    4. Alexandre Clément & Élisabeth Robinot & Léo Trespeuch, 2023. "The use of ESG scores in academic literature: a systematic literature review," Journal of Enterprising Communities: People and Places in the Global Economy, Emerald Group Publishing Limited, vol. 19(1), pages 92-110, March.
    5. Stanislav E. Shmelev & Nathan Lefievre & Nadim Saadi & Irina A. Shmeleva, 2023. "Interdisciplinary Linkages among Sustainability Dimensions in the Context of European Cities and Regions Research," Sustainability, MDPI, vol. 15(20), pages 1-28, October.
    6. María Mar Miralles-Quirós & José Luis Miralles-Quirós & Luis Miguel Valente Gonçalves, 2018. "The Value Relevance of Environmental, Social, and Governance Performance: The Brazilian Case," Sustainability, MDPI, vol. 10(3), pages 1-15, February.
    7. Gerhard Halbritter & Gregor Dorfleitner, 2015. "The wages of social responsibility — where are they? A critical review of ESG investing," Review of Financial Economics, John Wiley & Sons, vol. 26(1), pages 25-35, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Timár, Barnabás, 2023. "A klímavédelmi események hatása a köztudatra és a tőkepiacra. Empirikus vizsgálat Google-trends- és ETF-adatokon [The impact of climate events on public perception and capital markets. An empirical," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 713-745.
    2. Basse, Tobias & Karmani, Majdi & Rjiba, Hatem & Wegener, Christoph, 2023. "Does adhering to the principles of green finance matter for stock valuation? Evidence from testing for (co-)explosiveness," Energy Economics, Elsevier, vol. 123(C).
    3. Gianpaolo Iazzolino & Maria Elena Bruni & Stefania Veltri & Donato Morea & Giovanni Baldissarro, 2023. "The impact of ESG factors on financial efficiency: An empirical analysis for the selection of sustainable firm portfolios," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1917-1927, July.
    4. Ana María Gómez-Bezares & Fernando Gómez-Bezares, 2020. "Catholic Social Thought and Sustainability. Ethical and Economic Alignment," JRFM, MDPI, vol. 14(1), pages 1-22, December.
    5. Amir Gholami & Peter A. Murray & John Sands, 2022. "Environmental, Social, Governance & Financial Performance Disclosure for Large Firms: Is This Different for SME Firms?," Sustainability, MDPI, vol. 14(10), pages 1-21, May.
    6. Małgorzata Janicka & Artur Sajnóg, 2022. "The ESG Reporting of EU Public Companies—Does the Company’s Capitalisation Matter?," Sustainability, MDPI, vol. 14(7), pages 1-17, April.
    7. Al-Shaer, Habiba & Uyar, Ali & Kuzey, Cemil & Karaman, Abdullah S., 2023. "Do shareholders punish or reward excessive CSR engagement? Moderating effect of cash flow and firm growth," International Review of Financial Analysis, Elsevier, vol. 88(C).
    8. Pruthiranjan Dwibedi & Debasis Pahi & Antarjyami Sahu, 2024. "Mapping the landscape of environmental, social and governance research: A bibliometric analysis," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 3745-3767, September.
    9. Uyar, Ali & Lodh, Suman & Nandy, Monomita & Kuzey, Cemil & Karaman, Abdullah S., 2023. "Tradeoff between corporate investment and CSR: The moderating effect of financial slack, workforce slack, and board gender diversity," International Review of Financial Analysis, Elsevier, vol. 87(C).
    10. Danny Zhao‐Xiang Huang, 2022. "An integrated theory of the firm approach to environmental, social and governance performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1567-1598, April.
    11. Liu, Xiangqiang & Yang, Qingqing & Wei, Kai & Dai, Peng-Fei, 2024. "ESG rating disagreement and idiosyncratic return volatility: Evidence from China," Research in International Business and Finance, Elsevier, vol. 70(PB).
    12. Lamichhane, Pradeep & Pourali, Nima & Scott, Lauren & Tran, Nam N. & Lin, Liangliang & Gelonch, Marc Escribà & Rebrov, Evgeny V. & Hessel, Volker, 2024. "Critical review: ‘Green’ ethylene production through emerging technologies, with a focus on plasma catalysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 189(PB).
    13. Gabriela Tigu & Adrian Cioranu & Alexandra Miron & Olimpia State & Vlad Diaconescu, 2024. "Airport Service Providers in Support of SDGs," Businesses, MDPI, vol. 4(3), pages 1-18, August.
    14. Asimakopoulos, Panagiotis & Asimakopoulos, Stylianos & Li, Xinyu, 2023. "The role of environmental, social, and governance rating on corporate debt structure," Journal of Corporate Finance, Elsevier, vol. 83(C).
    15. Lööf, Hans & Sahamkhadam, Maziar & Stephan, Andreas, 2022. "Is Corporate Social Responsibility investing a free lunch? The relationship between ESG, tail risk, and upside potential of stocks before and during the COVID-19 crisis," Finance Research Letters, Elsevier, vol. 46(PB).
    16. Edna Aparecida Greggio Possebon & Felippe Aparecido Cippiciani & José Roberto Ferreira Savoia & Frédéric de Mariz, 2024. "ESG Scores and Performance in Brazilian Public Companies," Sustainability, MDPI, vol. 16(13), pages 1-18, July.
    17. Yujuan Wu & Jacquline Tham, 2023. "The Impact of Executive Green Incentives and Top Management Team Characteristics on Corporate Value in China: The Mediating Role of Environment, Social and Government Performance," Sustainability, MDPI, vol. 15(16), pages 1-23, August.
    18. Rouine, Ibtissem & Ammari, Aymen & Bruna, Maria Giuseppina, 2022. "Nonlinear impacts of CSR performance on firm risk: New evidence using a panel smooth threshold regression," Finance Research Letters, Elsevier, vol. 47(PB).
    19. Minh-Hieu Le & Wen-Min Lu, 2024. "An integrated multiple objective decision making approach for exploring the competitiveness of pharmaceutical multinational enterprises," Annals of Operations Research, Springer, vol. 341(1), pages 401-426, October.
    20. Xin Wang & Xiayun Song & Mingyang Sun, 2023. "How Does a Company’s ESG Performance Affect the Issuance of an Audit Opinion? The Moderating Role of Auditor Experience," IJERPH, MDPI, vol. 20(5), pages 1-17, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:17:y:2025:i:3:p:1286-:d:1584105. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.