The impact of sustainable investment on firm performance in South Africa

Abstract

Purpose: This study investigates the influence of environmental, social, and governance (ESG) scores on the financial performance of firms in South Africa across industries.

Motivation: In the context of the growing importance of sustainability reporting, understanding the link between ESG and firm performance is critical for informed and sustainable corporate strategies.

Design/Methodology/Approach: The study employs panel data regression techniques on secondary data from 120 Johannesburg Stock Exchange-listed firms between 2015 and 2020.

Main Findings: Overall, the composite ESG scores do not significantly affect the financial performance of South African companies. However, scores from social and governance pillars show a positive association with firm performance, while environmental scores have a limited effect.

Practical Implications/Managerial Impact: These findings suggest that not all ESG activities are equally relevant for firm profitability. Corporate managers should prioritise industry-relevant ESG pillars to enhance firm profitability.

Novelty/Contribution: The study expands empirical evidence in an emerging market context, analysing the impact of disaggregated ESG scores and providing comparative industry-specific analysis. This contributes to a nuanced understanding of the ESG-performance nexus.

Keywords:

• environmental; social
• governance
• financial performance; panel data
• heterogeneity; endogeneity

JEL Classification:

• C33
• G38
• L25
• M14
• Q56

Disclosure statement

No potential conflict of interest was reported by the authors.