Study On The Impact Of Corporate ESG Performance On Financial Performance

In recent years,the rampant epidemics and extreme weather disasters of the century,as well as the emergence of various social issues around the world,have forced mankind to rethink the "fishing by the sea" approach to development and to explore a new path to sustainable development,ESG,an acronym for Environmental,Social and Governance,has become a hot topic in financial markets in recent years and a powerful guide for companies to implement reforms,providing investors with a new way of thinking and effective management strategies to promote economic development.It is also a projection of the concept of sustainable development at the level of financial markets and micro-enterprises.With the outbreak of the new crown epidemic,ESG has become more prominent and the scale of its asset management is growing rapidly.it is only since 2016 that domestic ESG investment has started to receive attention,and although it started later than in Europe and the US,it is developing at a very rapid pace.According to the China Securities Investment Fund Association,by the end of the third quarter of 2021,the number of public and private funds in the green,sustainable and ESG directions was close to 1,000,with total fund assets exceeding RMB790 billion,an increase of 36% from the end of 2020.Exploring the impact of companies’ ESG performance on the relationship between financial performance not only enriches the research literature in China in this related area,but also provides guidance for the better development of the ESG concept.This thesis selects data from listed companies in Shanghai and Shenzhen A-shares from 2009-2021 as the research sample.Firstly,the direct impact of corporate ESG performance on financial performance is explored.Secondly,the moderating role of financing constraints in the impact of ESG performance on corporate financial performance is examined.Heterogeneity tests based on the nature of property rights and the nature of pollution were also conducted.Finally,robustness tests of the impact of corporate ESG performance on financial performance were conducted by replacing the explanatory variables,moderating variables measurement,and instrumental variables approach.In further research,the cost of financing is distinguished into the cost of equity capital and the cost of debt capital to explore the role it plays in the mechanism of the impact of ESG performance on financial performance.Considering ESG is a multidimensional structural concept,this thesis explores the impact on corporate financial performance through three subcomponents,environmental responsibility(E),social responsibility(S)and corporate governance(G),in turn.The empirical study of this thesis finds that: first,good ESG performance can enhance financial performance;second,the degree of financing constraints on enterprises can strengthen the positive impact of ESG performance on financial performance;third,the enhancement effect of ESG performance on financial performance is more pronounced among non-state enterprises than state-owned enterprises;fourth: the enhancement effect of ESG performance on financial performance is more pronounced among non-polluting enterprises than non-polluting enterprises;fifth: the enhancement effect of good ESG performance on financial performance is more pronounced among polluting enterprises.Fifth,good ESG performance can reduce both the cost of equity and the cost of debt capital,thus promoting the financial performance of enterprises;Sixth: the social responsibility dimension(S)plays the largest role in improving the financial performance of enterprises,followed by the corporate governance dimension(G),while the environmental responsibility dimension(E)is relatively effective in improving the financial performance of enterprises.The effect of the environmental responsibility dimension(E)on the improvement of corporate financial performance is relatively limited.The effect of the four dimensions on financial performance is relatively limited.Based on the above findings,this thesis proposes recommendations for the corporate level,the government level,the third party ESG intermediary level and the investor level.The innovation of this thesis is reflected in two aspects: firstly,it clarifies the complex relationship between ESG performance and the financial performance of enterprises.It clarifies the linkage mechanism between ESG performance and corporate financial performance,clarifies the purpose of ESG evaluation,rationalises the right way of thinking about sustainable development,and solves the problem of the validity and consistency of ESG evaluation from the source.The moderating role played in the impact of both is explored from the perspective of financing constraints,and a preliminary mechanism analysis is conducted from two dimensions of financing costs.