A Review of Research on ESG Performance and Corporate

Performance of Listed Companies

Qianyi Liu

School of Accounting, Wuhan Textile University, Wuhan, China

Keywords: ESG Performance, Corporate Performance, Information Disclosure.

Abstract: The ideas of green development and sustainable development have slowly gained traction in recent years, and

businesses' environmental, social, and corporate governance (ESG) performance has drawn a lot of attention

from a wide range of sources. This paper combs through the research on the relationship between ESG

performance and financial performance, innovation performance and enterprise value, and the impact of ESG

ratings and ESG disclosure on corporate performance. It concludes that there are problems of immature ESG

concept, imperfect ESG rating system, and lack of comparability of ESG ratings. Existing studies have the

limitations of one-sided data and short time span. Current study reveals deficiencies in the depth and breadth

of studies about ESG performance, the ESG grading system, and the mechanisms for ESG information

dissemination. Future long-term, comprehensive multi-industry research should integrate multidimensional

viewpoints, including digital transformation, to enhance the establishment of high-quality ESG and attain

sustainable corporate development.

1 INTRODUCTION

1.1 Background to the Study

Increasingly, individuals are turning conscious of the

ir obligation to safeguard the environment, although

it can be traced back to ancient civilisations such as t

he Greeks and Romans. The Americans created Yell

owstone National Park, the first nature reserve in hist

ory, as a result of growing concerns about environme

ntal degradation in the late 18th century. They also e

ngaged the public in the preservation of wilderness a

nd the enjoyment of nature by encouraging the prese

rvation of natural resources in uninhabited areas. It w

as only with the publication of Rachel Carson's Silen

t Spring in 1962 that the problems of air and water p

ollution and the widespread use of pesticides and oth

er chemicals, which made it difficult to restore ecolo

gical status quo ante in the short term for hundreds o

f years, were brought to the forefront of the public co

nsciousness. The achievements of our predecessors h

ave inspired the modern environmental movement an

d contributed to significant progress in the field of en

vironmental protection. People are more interested in

preserving nature than in conquering it, and it has be

come a global consensus that sustainable developme

nt can be achieved by reducing pollution and carbon

emissions and achieving a harmonious coexistence b

etween human beings and nature.

In the past, there are a large number of enterprise

s manufacturing production caused by environmental

pollution problems, in recent years, reflecting on the

conclusion that enterprises should be in the ecologic

al environment allows the conditions of protective de

velopment. Technological advances continue to deve

lop, the search for cleaner and more environmentally

friendly production methods that don't kill the goose

that lays the golden eggs is a prerequisite for firms

who want economic growth that is sustainable. Gree

n sustainable development, which aims to achieve th

e harmonious coexistence of humans and nature, has

become the rage due to pivotal ecological realm dile

mmas, recurring phenomena of natural variability, an

d significant climatic threats. This is where the ESG

values of sustainable development came from. Origi

nally put forth in June 2004, the United Nations Glob

al Compact (UNGC) concept of ESG was initially pr

esented. It promotes the idea that businesses should f

ocus on commercial operations while taking environ

mental, social, and governance performance into acc

ount. ESG elements encompass three different comp

onents. First, environmental factors include pollution

590

Liu, Q.

A Review of Research on ESG Performance and Corporate Performance of Listed Companies.

DOI: 10.5220/0013271100004568

In Proceedings of the 1st International Conference on E-commerce and Artiﬁcial Intelligence (ECAI 2024), pages 590-595

ISBN: 978-989-758-726-9

prevention, biodiversity conservation, the circular ec

onomy, and the mitigation and adaptation to climate

change. In addition to the more pressing issues of mi

tigating and adapting to climate change, it is imperati

ve to address the wider facets of environmental prote

ction, such as maintaining biodiversity, preventing p

ollution, and advancing the circular economy. This c

overs resource management, greenhouse gas contain

ment, recycling programs, emissions control, and tra

sh disposal. The social factor then enters the picture,

highlighting the need of loyalty and trust among stak

eholders while addressing inequalities, encouraging i

nclusivity, and enhancing labor relations and commu

nity initiatives. It also entails taking responsibility fo

r the product, protecting human rights, and making s

ure workers are treated fairly. Lastly, corporate gove

rnance must be prioritized, with a focus on the effici

ent management of private companies and organizati

ons. This includes executive remuneration, managem

ent structure, and employee relations—all of which ar

e essential for incorporating social and environmenta

l concerns into business decision-making and uphold

ing the standards of excellent corporate governance.

1.2 Purpose and Significance of the

Study

A non-financial metric that fully captures data on co

mpany governance, social responsibility, and environ

mental preservation is called ESG performance. The

link between how well a business performs and its E

SG milestones has only just gained broad approval.

Business performance usually enhances for compani

es that thrive in ESG. It is becoming more and more

clear how ESG affects a company's operational healt

h, capacity to prosper in its business environment, an

d ability to chart its course for future expansion. The

efficiency and effectiveness of an organization in co

mpleting its goals and objectives within a certain tim

e period is referred to as enterprise performance. The

long-term competitiveness of a business is now seen

as being significantly influenced by the emergence o

f ESG as a key factor, which corresponds to the incre

asing emphasis placed on ESG performance. Numer

ous studies by prior investigators have explored the l

inkage between ESG metrics and corporate success,

aiming to assist firms in enhancing their economic ef

ficiency. However, the results of these studies are mo

re dispersed, so this paper will compile and analyze t

he literature to establish a more intimate relationship

between the two influences for the convenience of f

uture researchers. Enhancing studies on how ESG pe

rformance affects business performance. By incorpor

ating variables that affect diverse aspects of ESG per

formance and their influence on business performanc

e, this research fills a void in the existing literature. E

stablish a foundation of reference for the developme

nt of corporate ESG. ESG considerations have a fina

ncial influence on business profitability and competit

iveness, offering helpful recommendations for busin

esses looking to increase profitability. Participate in i

nvestor and managerial decision-making. To assist bu

siness managers better handle resource allocation chal

lenges and enhance management, investigate and eval

uate how corporate profitability and ESG performance

are related.. Assist investors in predicting future trend

s so they may make better investment choices.

2 ESG PERFORMANCE AND

CORPORATE PERFORMANCE

2.1 Relationship Between ESG

Performance and Financial

Performance, Innovation

Performance and Firm Value

2.1.1 ESG Performance and Financial

Performance

In the developed market sectors, the ESG performan

ce of firms that are particularly attuned to environme

ntal issues tends to receive greater recognition and ex

erts a more pronounced impact on the financial outco

mes of these companies when compared to their cou

nterparts in the developing world. A comprehensive

empirical examination by Naeem et al. (2022) was ca

rried out, utilizing a dataset comprising 305 environ

mentally sensitive firms operating within developed

economies, juxtaposed with a sample of 78 similar fi

rms from developing nations, covering a decade-long

period from 2009 to 2018. The researchers discover

ed that firms demonstrating a high level of ESG perf

ormance not only experience a favorable influence o

n their profitability but also tend to see a boost in the

ir financial success. Moreover, an empirical study ex

ploring the intricate relationship between a company'

s ESG performance and its capacity to innovate withi

n the domain of green technologies has been carried

out by Ming et al. (2022), as well as the moderating i

nfluence of environmental uncertainty on this relatio

nship, has revealed that a robust ESG performance is

capable of effectively catalyzing corporate innovatio

A Review of Research on ESG Performance and Corporate Performance of Listed Companies

591

n. This, in turn, helps to alleviate the financial constr

aints that these firms might face, ultimately leading t

o an enhancement in their performance related to gre

en innovation initiatives.

2.1.2 ESG Performance and Innovation

Performance

In their 2024 study, Cabaleiro-Cerviño & Mendi har

nessed PITEC data in conjunction with a sophisticate

d matching methodology to assess the efficacy of bu

sinesses that believe that at least one ESG element is

pertinent. Specifically, they examined how firms tha

t integrate at least one ESG-related goal into their inn

ovation strategies might experience enhanced perfor

mance when contrasted with their counterparts that d

o not engage with ESG criteria. Furthermore, they so

ught to determine if firms that merge their innovatio

n strategies with ESG objectives demonstrate more a

dvanced achievements than those that do not assign p

riority to ESG factors. The research revealed that bus

inesses focusing on ESG objectives within their inno

vation strategies outperform similar, creative, but ES

G-nonaligned businesses. Moreover, an empirical stu

dy exploring the intricate relationship between a com

pany's ESG performance and its capacity to innovate

within the domain of green technologies has been ca

rried out by Ming et al. (2022) , as well as the moder

ating influence of environmental uncertainty on this

relationship, has revealed that a robust ESG perform

ance is capable of effectively catalyzing corporate in

novation. This, in turn, helps to alleviate the financia

l constraints that these firms might face, ultimately le

ading to an enhancement in their performance related

to green innovation initiatives.

2.1.3 ESG Performance and Corporate

Value

Investing in high ESG performance, as investigated b

y Aydogmus et al. (2022) into its effects on firm valu

e and profitability, can yield financial returns for bus

inesses, with a significant positive correlation having

been discovered between overall ESG composite sc

ores and firm value. According to L. Wang et al. (20

22), effective ESG performance may increase compa

ny value by lowering corporate financial risk, enhanc

ing corporate investment efficiency, and easing corp

orate financing limitations.

2.2 Impact of ESG Ratings and ESG

Disclosure on Firm Performance

2.2.1 ESG Ratings and ESG Disclosure

The ESG framework is constructed from three integr

al components: ESG performance, ESG rating, and t

he transparency of ESG disclosures. Within this syst

em, a positive correlation can be observed between a

company's ESG performance and its ESG rating sco

re; in other words, superior ESG performance is typi

cally rewarded with a higher rating. Additionally, a g

reater degree of ESG disclosure is associated with le

ss stringent financing conditions, which in turn indir

ectly fosters the enhancement of corporate ESG ratin

gs. Consequently, this process facilitates an improve

ment in the overall ESG performance of the corporat

ion.

2.2.2 Impact of ESG Ratings on Firm

Performance

In an exploration aimed at ascertaining the impact of

a company's ESG ratings on its market valuation, G

awęda (2022) postulated a hypothesis suggesting a ro

bust positive correlation between the high ESG ratin

gs of companies within select EU market sectors and

the subsequent influence on their market valuations.

The study revealed that corporate controversies serv

e as a detrimental factor to the market value of comp

anies across all industries, whereas the ESG ratings a

nd the disclosure thereof are key determinants of mar

ket value for companies within particular sectors. Na

(2023) employed an approach that involved an indus

try-by-industry comparison of ESG ratings. The resu

lts indicated that companies boasting high ESG ratin

gs tend to experience comparatively higher earnings

per share and stock returns over the same timeframe

when contrasted with those having lower ratings. Fur

thermore, a significant positive correlation was ident

ified between these two factors, with the effect being

particularly pronounced within the manufacturing a

nd financial real estate industries.

2.2.3 The Impact of ESG Disclosure on Firm

Performance

Reber et al. (2022) have posited that the act of volunt

arily disclosing ESG information by firms is associat

ed with a reduction in downside tail risk and a decrea

se in idiosyncratic volatility. Observations indicate th

at companies which possess higher ESG ratings tend

to exhibit lower levels of volatility that is specific to

the firm, as well as a diminished risk of downside ta

ECAI 2024 - International Conference on E-commerce and Artiﬁcial Intelligence

592

il events. This trend is particularly noticeable during

the initial year of their trading activities in the afterm

arket. Furthermore, the performance and disclosure o

f ESG-related metrics are instrumental in helping fir

ms build reputational capital with investors subseque

nt to their listing. Xu et al. (2022) propose in a distin

ct investigation that the disclosure of ESG informatio

n, when done effectively, can lead to an increase in s

tock returns, a decrease in information asymmetry, a

nd a strengthening of a company's overall value, fina

ncial performance, and innovative capabilities.

3 RECOMMENDATIONS

3.1 Improve ESG Rating System and

ESG Information Disclosure

Mechanism

Good ESG performance and a consensus ESG rating

system will promote digital transformation of enterp

rises; a unified standard of ESG disclosure can ease c

orporate financing constraints and promote growth in

corporate performance. The task of evaluating the E

SG performance of companies is fraught with difficu

lties, particularly due to the proliferation of ESG rati

ng organizations in the market that employ differing

rating criteria. This diversity in standards can lead to

inconsistencies and conflicts, which in turn may cre

ate challenges for businesses seeking financing. The

presence of numerous rating systems, each with its o

wn set of criteria, complicates the assessment proces

s and has the potential to result in discrepancies that

can impact a company's ability to secure funding. Fu

rthermore, because of the impact of disputes between

managers and policymakers, more problems arise fr

om corporate decision-making, leading to difference

s in the degree of ESG disclosure across enterprises,

making it difficult to combine digital transformation

with ESG concepts to achieve sustainable corporate

development.

Standardize pertinent information and enhance th

e ESG disclosure and grading systems. Businesses m

ay attain strong ESG performance in part by using th

e ESG grading system and information sharing meth

od. Enhancing business information openness and lo

wering funding challenges may be achieved via a sta

ndardized ESG grading system and information discl

osure method. The ESG system is not particularly so

und at present. The design of many indicators does n

ot match the specific corporate development situatio

n , and the disclosure system is not perfect. For exam

ple, some companies' disclosure is a complete ESG r

eport, while some are sustainability reports or social

responsibility reports. Although the contents are part

ially similar to a certain extent, the format is not unif

orm enough, and the indicators of disclosure are not

uniform . It is imperative that specific disclosure indi

cators be developed in alignment with the unique cha

racteristics of various industries. Such an approach n

ot only facilitates the process of information disclosu

re for businesses but also enhances their ability to en

gage in meaningful comparisons utilizing identical in

dicators. The formulation of these tailored indicators

ensures that companies within a particular sector ca

n more readily disclose relevant information and, co

ncurrently, enables them to undertake more effective

comparisons of performance metrics across the indu

stry. This makes information even more transparent

and helps stakeholders better understand how busine

sses are developing.

3.2 Improving Regulatory and

Incentive Policies for Corporate

ESG Disclosure

Government agencies should make it more difficult f

or businesses to provide ESG information, create a fa

ir system of rewards and penalties, and toughen pena

lties for businesses that publish misleading ESG data

. In order to encourage AI companies to voluntarily p

ublish ESG-related information and increase their tra

nsparency, it should simultaneously create a strong E

SG disclosure system, integrate it into rules in collab

oration with regulators, and create appropriate incent

ive schemes. In order to improve corporate performa

nce, boost investor confidence, keep investing in inn

ovation, and realize the positive feedback loop of inn

ovation-driven ESG for high-quality development of

platform-based enterprises, businesses should increa

se awareness of ESG concepts and encourage high-q

uality development of businesses. Corporate investor

s should focus on more than just short-term investme

nt returns and the growth of corporate business size

when it comes to high-quality and sustainable develo

pment,but also actively promote and facilitate the ES

G disclosure and institutional construction of platfor

m enterprises, reasonably participate in corporate go

vernance, integrate ESG and other non-financial indi

cators into investment decisions, encourage and supp

ort platform enterprises to continue to innovate, and

pay attention to long-term returns, so as to reduce inv

estment risks. The government ought to assist busine

sses in raising the degree of green technological inno

vation, provide more funding for business resources,

recognize the critical role that green technology inno

vation plays, improve the environment for businesse

A Review of Research on ESG Performance and Corporate Performance of Listed Companies

593

s that engage in green innovation, and encourage inn

ovation. More resource support should be given to en

terprises with voluntary ESG information disclosure

to fully enhance their willingness to participate in en

vironmental governance and promote sustainable dev

elopment. Businesses should focus on ESG-related e

ndeavors and provide more funds to enhance ESG tr

ansparency. To achieve sustainable development in i

ts truest sense, the integration of ESG principles into

the daily production and operational activities of bus

inesses is essential, as it addresses the increasing de

mands of stringent environmental regulations. Gover

nments are called upon to enact policies and to under

take studies that resonate with the practical applicati

on of ESG principles within their respective enterpri

ses. To enhance the understanding of enterprise man

agers regarding the current operational and developm

ental status of their firms, future scholarly endeavors

could amalgamate financial performance, innovatio

n performance, and enterprise value into a comprehe

nsive study. This study would aim to explore the mul

tifaceted impact of digital transformation and ESG p

erformance on enterprise outcomes, as well as to fore

cast the future trajectory of business development. S

uch research endeavors would be instrumental in aidi

ng enterprises in their pursuit of sustainable growth a

nd development.

4 CONCLUSIONS AND

OUTLOOK

In conclusion, it is the influence of ESG performance

on the financial, innovative, and value-related aspec

ts of corporations, along with the consequences of E

SG ratings and the disclosure of ESG information on

business performance, that constitutes the principal f

ocus of scholarly research both within national boun

daries and on a global scale. This domain of study ha

s captured the attention of academics across the worl

d, who are dedicated to examining how ESG metrics

and the transparency thereof impact various dimensi

ons of corporate success and worth. Among these, bu

sinesses that do well in ESG have better financial, in

novative, and enterprise value results; companies wit

h sound ESG rating system have good social reputati

on; companies with more ESG information disclosur

e have higher information transparency and can attra

ct more investors. Issues like knowledge asymmetry

and financing challenges in the corporate market are

likely to result from an inadequate corporate ESG gr

ading system and uneven ESG information disclosur

e rules. Companies with strong corporate governance

, social responsibility, and environmental protection

also do well overall, and the active implementation o

f ESG governance supports long-term company succ

ess. This study identified important gaps in the literat

ure by analyzing the results of other studies on the co

nnection between listed corporations' corporate succ

ess and ESG performance. The data adopted in the e

mpirical analysis of the cited literature are mostly ba

sed on a single industry as the case study object, whi

ch is somewhat one-sided, and the conclusions of the

research can not represent the enterprises in other fie

lds The development of the practice and disclosure o

f the fulfilment of ESG responsibility is a long term

process, and the data used in the cited literature are l

ess than ten years, which is a short time span. The da

ta used in the empirical analysis of the cited literatur

e is less than ten years, and the time span is short, wh

ich fails to form more convincing long-term research

results, so the analysis conclusions and the actual sit

uation also have limitations, and the research on the

case study enterprises also needs more long-term obs

ervation and research. Existing research on corporate

performance focuses on a single ESG performance,

but should be combined with multi-dimensional thin

king from the perspectives of digital transformation,

artificial intelligence revolution and carbon risk, with

the goal to bring the research's findings more into li

ne with the present climate and to encourage the crea

tion of superior ESG in order to accomplish the susta

inable growth of businesses.

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