The Impact of ESG on Firm Financial Performance: Empirical Evidence from Companies in the UK FTSE350

This study examines the relationship between Environmental, Social, and Governance (ESG) and financial performance in the United Kingdom context, an area of increasing importance in both academic and practical domains. ESG is measured using the London Stock Exchange Group (LSEG) disclosure score. Using a dataset of firms in the FTSE 350 index over a 5-year period from 2020 to 2024, a panel regression model is employed to analyse the relationship between ESG and financial performance. The results of this study are mixed. When using ROA as a proxy for financial performance, the results suggest a statistically significant and positive relationship between ESG and financial performance, although the ESG coefficient indicates a relatively modest effect. However, when ROE is used as a proxy, the results are insignificant, suggesting that the impact of ESG may vary depending on the financial performance measure used. These findings contribute to the literature by providing evidence from the UK during a period of economic disruption, highlighting ESG’s role in operational performance rather than shareholder returns. However, the results should be interpreted with caution due to the use of disclosure-based ESG measures and a limited set of control variables.