Abstract:
BACKGROUND : Environmental, social and governance (ESG) factors have become topical in
recent years because of climate change existential threat to humanity. There is, however, a
limited understanding of how the firm’s ESG efforts affect firm outcomes.
AIM : The aim of this study was to investigate the relationship between firm’s ESG indicators
and the financial performance.
SETTING : The sample is drawn from Johannesburg Stock Exchange (JSE) listed companies based
on data availability. South Africa is not only plagued by social ills and governance failures, but
it is also one of the world’s largest emitters of greenhouse gases, making it an ideal laboratory
for studying the ESG and firm performance nexus.
METHOD : We utilized a dataset spanning the years 2012–2022, covering 67 JSE-listed firms.
These panel data were analyzed using the two-step system generalised method of moments
(GMM).
RESULTS : We found that the disaggregated ESG indexes have a positive, albeit insignificant
impact on the financial performance. These findings hold even when financial and nonfinancial
firms are examined separately.
CONCLUSION : Policymakers, including standard setters and regulators, should encourage firms
to be sincere on ESG efforts and avoid greenwashing.
CONTRIBUTION : The study employs a relatively robust estimation technique (two-step system
GMM) over a relatively long period (2012–2012). Furthermore, the sectoral analysis of financial
and non-financial firms adds to the body of literature and policy development.
