Impact of ESG Factors on Financial Performance of Chinese Listed Companies

To achieve good long-term financial performance, a company needs to develop a Corporate Social Responsibility strategy that integrates Environmental, Social and Governance (ESG) factors. This would enable it to meet the expectations of its stakeholders. This study investigates the impact of ESG practices on the financial performance of Chinese firms, addressing stakeholder expectations and strategic corporate outcomes. A two-step Generalized Method of Moment estimation model and penalized-spline estimation are used to test the relationship between financial performance and ESG factors on 772 Chinese companies from 2015 to 2019. This study’s results reveal a significant impact of ESG factors on the financial performance of the companies in our sample, as measured by their Return On Equity and market-to-book ratio. This research makes a significant contribution to the existing literature by providing empirical evidence on the impact of ESG factors in the Chinese context, a developing market with unique characteristics. It highlights the importance of good governance practices and environmental investments in improving financial performance. This work offers valuable insights for policymakers, investors, and companies on the potential benefits of integrating ESG criteria into their corporate strategies.