Abstract:

In this study, based on publicly listed company financial and environmental, social, and governance (ESG) data, the impact of ESG factors on the financial performance of the Philippines was empirically investigated. The micro-level impact of ESG practices on the financial performance of companies listed in the Philippine Stock Exchange from 2010-2018 was estimated using quarterly-reported panel financial and ESG data for 26 firms spanning 8 years. Financial performance was measured using a range of financial ratios to capture profitability and equity valuation. Conversely, the macro-level responsiveness of a country’s environmental performance to global aidflows and to economic activity per capita or income was appraised. Out of six micro-level empirical experiments, only one showed a non-negative correlation, three were insignificant, and the last two showed significant negative correlations between ESG screens and financial performance. From a macro-level lens, while no positive relationship was found between country-level aidflows and environmental performance, a more robust functional form was seen in using the significant predictive power of income as the regressor. The results also indicated strong empirical evidence of the environmental impact of inequality and global competitiveness, as well as an impact separately derived from inequality and income. Competitiveness—the common denominator across three experiments—is the driver of business value creation that could place firms or countries on a more attainable path to sustainable growth. This paper contributes to the ongoing debate on the determinants of financial performance based on ESG-related factors. Findings emphasize the need for both capital markets actors and foreign aid donors to better shape the sustainable economic outcome of firms and countries without further sacrificing environmental protection by focusing resources on competitive strategies.