The Impact of Environmental, Social, and Governance (ESG) Performance on Corporate Return on Investment: Evidence from China

Improving corporate return on investment and generating returns for shareholders are among the important operating objectives of listed companies. With the development of the stakeholder concept, corporate operations have paid greater attention to environmental, social, and governance (ESG) performance; however, whether ESG performance can improve return on investment remains to be studied. Using a sample of Chinese A-share listed companies from 2009 to 2023, this study constructs a two-way fixed-effects model to examine the relationship between corporate ESG performance and return on investment. The empirical results show that ESG performance can significantly improve corporate return on investment, and this result remains valid after a series of robustness tests. The heterogeneity analysis finds that the positive effect of corporate ESG performance on corporate return on investment is more significant among non-state-owned enterprises, large firms, and young firms. The mechanism tests show that ESG performance can improve corporate return on investment by increasing total factor productivity and promoting corporate green innovation. This study provides empirical evidence from Chinese listed companies for understanding the economic consequences of ESG performance and also provides a reference for firms seeking to improve operating performance.