The rising popularity of environmental, social, and governance (ESG) investing is prompting private and public sectors to enhance their ESG performance and achieve financial stability. Urging the importance, past research has revealed how stakeholders gradually rely on firms’ ESG disclosures to assess performance and make well-informed financial decisions, yet understanding the nexus between ESG performance and financial stability remains scattered. Unlike previous reviews, this paper thoroughly investigates the relationship by synthesizing 140 articles published between 2011 and 2023. In doing so, this review maps out the scholarly contributions of almost 200 researchers across 40 countries, with about 40% of the studies featuring cross-country analyses. The review identifies that no past studies rely on a single theory to outline ESG disclosure; instead, they mostly underpin multiple theoretical bases, including agency theory, legitimacy theory, stakeholder theory, signaling theory, resource-based view, risk management theory, institutional theory, etc. Also, it points out diverse critical factors influencing ESG performance, such as environmental uncertainty, political and legal environments, ownership structures, board characteristics, and investment efficiency. Contributing to the growing body of ESG literature, this review offers valuable insights into deepening our understanding of ESG performance and financial stability, facilitating future improvements in ESG reporting frameworks. Moreover, it outlines notable future research directions to enrich this evolving research field.
Zheng et al. (Tue,) studied this question.