The Role of Environmental, Social, Governance (ESG) Practices and Ownership on Firm Performance in Emerging Markets

Abstract

This paper investigates: (i) the effect of environmental, social, and governance (ESG) engagement and ownership attributes on firm performance and (ii) whether different ownership attributes (institutional, foreign, and state ownership) moderate the association between ESG engagement and firm performance. Employing an extensive sample from 22 emerging countries worldwide, we provide cross-country evidence that ESG engagement and its three pillars, i.e. environmental, social, and governance pillars, enhance firm performance, proxied with ROA and Tobin's Q. Moreover, institutional and foreign ownership positively impact firm performance. We present novel evidence that the positive impact of superior ESG engagement on firm performance is lower for higher institutional ownership companies than lower institutional ownership companies, but greater for higher foreign ownership companies than lower foreign ownership companies.