Environmental, Social and Governance (ESG) Performance and Corporate Default Risk

This paper investigates the relationship between Environmental Social Governance (ESG) performance and their probability of company's default. Using a sample of four companies from 2015 to 2023, we find that ESG score exerts a minimal overall effect, whereas EBIT_Rev positively influences profitability (p < 0.01), and leverage is inversely related to ROE (p < 0.01). Firm-level regressions analyses indicate nuanced effects, with GSK gaining from high ESG scores, likely due to stakeholder trust in Western Markets, while AZN and HCM have adverse ESG consequences resulting from resource allocation costs. HIK exhibits minimal ESG impacts with moderate ratings. Fixed effects are confirmed by the Hausman test (p < 0.05). It is suggested to implement targeted ESG strategies: GSK should continue to implement ESG, AZN and HCM should manage costs, and HIK should practice better disclosure. These results provide practical recommendations to balance sustainability and financial performance in the pharmaceutical industry.