Decoding the Impact of Firm-Specific Factors on ESG Performance: Empirical Evidence from Global Firms

Abstract

In recent times, with increasing awareness of sustainable development, environmental, social, and corporate governance (ESG) performance has emerged as an important factor in achieving sustainable development. In the current literature, the determinants of ESG performance are mostly considered at the macro level, while the impact of firm-specific factors remains limited. To fill the gap in the literature, this study uses panel data from 2014 to 2023, focusing on 89 global firms, and applies the GMM approach to examine the impact of firm-specific factors on firms’ ESG performance. The findings reveal that ESG performance demonstrates strong continuity. Furthermore, the effects of financial indicators on ESG performance differ. While return on assets and capital expenditures negatively impact environmental performance, return on equity positively affects liquidity, firm size, and market capitalization for some ESG dimensions. Conversely, the total debt to total equity has a negative impact on social performance. The findings of this study regarding the impact of financial indicators on ESG performance have important implications for firms. This paper contributes to the ESG literature by providing empirical evidence that highlights the dynamic impact of firm-specific factors on ESG performance.