Relationship Between Environmental, Social and Governance and Corporate Financial Performance: A Systematic Literature Review

Cao Yingzhao, Mohd Hizam-Hanafiah
Faculty of Economics and Management, Universiti Kebangsaan Malaysia
Nanjing Audit University Jinshen College
Faculty of Economics and Management, Universiti Kebangsaan Malaysia

DOI: https://doi.org/10.60016/majcafe.v32.22


Abstract

This study conducts a systematic literature review to examine the relationship between Environmental, Social and Governance (ESG) and Corporate Financial Performance (CFP). ESG represents the non-financial performance of a business, while CFP reflects its financial performance. Achieving long-term success requires firms to find a balance between ESG performance and CFP. The Preferred Reporting Items for Systematic Review and Meta-Analysis (PRISMA) statement is employed to analyze the systematic literature review in this investigation. Data for the article were collected from Scopus and Web of Science databases spanning from 2000 to 2022. Both databases show consistent growth rates, with India being their top setting. This study reveals that quantitative techniques have been predominantly used in conducting investigations on this topic. With global emphasis on sustainable development and green economy, expectations of governments, regulators, corporations, and investment organizations have evolved beyond economic sustainability towards considering the well-being and responsibility of enterprises towards various stakeholders. Few scholars have utilized the PRISMA approach to analyze the impact of ESG on CFP; therefore, this study employs it to summarize how ESG ratings influence CFP as a reference for current research stage. Limitations are discussed along with recommendations for future research.

Keywords:  systematic literature review, PRISMA, Environmental, Social and Governance (ESG), Corporate Financial Performance (CFP), relationship