This study investigates the empirical relationship between Environmental, Social, and Governance (ESG) scores and the valuation of publicly traded companies, using cash flows as a proxy for corporate value. Drawing from the Thomson Reuters EIKON database, the research analyzes data from 74 large firms across 16 countries over a ten-year period (2012–2021). A longitudinal linear regression approach was employed, with ESG scores as the independent variable and cash flows as the dependent variable, while firm size was controlled using market capitalization. Results reveal a statistically significant, positive correlation between ESG scores and cash flows for each year analyzed, although the strength of this relationship is modest, with R² values ranging from 0.122 to 0.189. These findings support the hypothesis that ESG efforts contribute positively, albeit moderately, to financial performance. The research aligns with stakeholder theory, highlighting how ESG initiatives may enhance long-term value by addressing broader stakeholder interests. Despite variability introduced by external events like the COVID-19 pandemic and political cycles, the correlation remained consistent. This study expands upon existing literature by uniquely focusing on cash flows as a valuation metric and offering a decade-long, globally representative analysis. It offers practical insights for corporate decision-makers and investors by reinforcing ESG’s role in financial strategy and value creation.
William H. Shaw (Mon,) studied this question.