Published Online:January 2026
Product Name:The IUP Journal of Corporate Governance
Product Type:Article
Product Code:IJCG020126
DOI:10.71329/IUPJCG/2026.25.1.27-47
Author Name:Preethi Karlapudi and Gaddam Naresh Reddy
Availability:YES
Subject/Domain:Management
Download Format:PDF
Pages:27-47
As sustainability concerns continue to rise, the link between environmental, social, and governance (ESG) performance and financial outcomes has gained increasing attention, especially in highly polluting industries where the balance between profitability and sustainability is crucial. This study examines the bidirectional relationship between ESG and FP, investigating whether ESG initiatives drive financial success or whether financially strong firms are more likely to invest in ESG. Using panel data regression models, the study evaluates the impact of E, S, and G scores on key financial metrics—Return on Assets, Return on Equity, and Tobin’s Q—and vice versa. Firm age, Firm size and Covid-19 are the control variables. Additionally, Granger causality tests assess whether past ESG performance predicts future financial outcomes and whether financial success leads to increased ESG investments. The results indicate that ESG performance significantly enhances financial performance, particularly through environmental and governance initiatives, while financial performance does not consistently drive ESG improvements. These findings emphasize the strategic value of ESG integration, reinforcing its role in shaping corporate sustainability and long-term financial resilience. The study provides actionable insights for corporate managers, investors, and policymakers, advocating for stronger regulatory frameworks and sustainable investment strategies in highly polluting industries.
The relationship between environmental, social, and governance (ESG) practices and financial performance (FP) has attracted significant interest from researchers, investors, and corporate leaders.