International Review of Environmental and Resource Economics > Vol 19 > Issue 3-4

The Road Toward Sustainable Development: Environmental, Social, and Governance and Firm Performance

Qi Wang, State Key Laboratory of Water Pollution Control and Green Resource Recycling, School of Environment, Nanjing University, China AND School of Business, Nanjing University, China, wangqi_hy@nju.edu.cn , Jiayang Shi, State Key Laboratory of Water Pollution Control and Green Resource Recycling, School of Environment, Nanjing University, China, shijiayangws@163.com , Yandan Pan, State Key Laboratory of Regional Environment and Sustainability, School of Environment, Tsinghua University, China, yd_pan@smail.nju.edu.cn , Yue Huang, State Key Laboratory of Water Pollution Control and Green Resource Recycling, School of Environment, Nanjing University, China, 522023250040@smail.nju.edu.cn , Bing Zhang, State Key Laboratory of Water Pollution Control and Green Resource Recycling, School of Environment, Nanjing University, China AND School of Economics, Nanjing University of Finance and Economics, China, zhangb@nju.edu.cn
 
Suggested Citation
Qi Wang, Jiayang Shi, Yandan Pan, Yue Huang and Bing Zhang (2025), "The Road Toward Sustainable Development: Environmental, Social, and Governance and Firm Performance", International Review of Environmental and Resource Economics: Vol. 19: No. 3-4, pp 227-318. http://dx.doi.org/10.1561/101.00000177

Publication Date: 17 Dec 2025
© 2025 Q. Wang et al.
 
Subjects
Corporate governance,  Disclosure,  Performance measurement,  Management structure, governance and performance,  Corporate finance,  Information systems and society,  Information systems management,  Strategic management,  Environmental economics,  Regulation,  Corporate strategy,  Stakeholder strategy,  Supply chain management
 
Keywords
JEL Codes: G32, G34, M14
ESG, corporate financial performance, influence mechanism
 

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In this article:
1 Introduction 
2 ESG and Corporate Financial Performance 
3 ESG's Role in Shaping Legitimacy and Corporate Financial Performance 
4 ESG's Role in Shaping Reputation and Corporate Financial Performance 
5 ESG's Role in Shaping Corporate Management and Corporate Financial Performance 
6 Conclusion 
References 

Abstract

In recent years, the importance of Environmental, Social, and Governance (ESG) factors in shaping business sustainability and performance has gained significant attention. ESG is not only a measure of a company's social responsibility but also a crucial determinant of its long-term success. Despite the widespread recognition of ESG's importance, its impact on firm performance remains a subject of debate. In this paper, we systematically review and analyze the complex relationship between ESG and firm performance. We first introduce major ESG rating methods and agencies, followed by a synthesis of the empirical evidence on the relationship between ESG and corporate financial performance, with particular emphasis on the conflicting and inconclusive findings in the literature. Subsequently, we examine the mechanisms through which ESG practices influence firm performance, focusing on legitimacy, reputation, and corporate management as key pathways. Through this analysis, we aim to provide insights into how ESG can drive sustainable development and influence firm performance in the long run. Our study contributes to the ongoing academic discussions and practical advancements in the field of ESG by providing a structured approach to understanding the complex and multidimensional relationship between ESG and corporate performance and identifying future research directions.

DOI:10.1561/101.00000177