Environmental, social, governance factors and financial performance: Evidence from sensitive sector

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Abstract

The main aim of this paper is to analyze the impact of environmental, social, and governance (ESG) factors on financial performance (market value), within the context of US markets, utilizing financial data from firms listed on the US S&P 500 index, focusing on energy stocks over the decade spanning 2015 to 2023. Following an approach based on the structural equation modelling (SEM) using SmartPLS indicate that, it is implemented to assess the indicated linkages. The results demonstrate significant positive correlations between capital expenditure (CapEx), ESG factors, and market value. Although no direct link between environmental factors and revenue was identified, CapEx and enterprise disclosure scores showed a positive significance. Additionally, the capital spending, with mediated sales revenue, has a significant positive impact on ESG. This investigation enriches the available knowledge on ESG influences and the effectiveness of energy enterprises by underlining the importance of financial outlay. It posits that policymakers have the capacity to foster sustainable practices by monitoring the allocation of corporate expenditures and assessing their implications for market valuation. Investors may leverage this data to identify organizations that prioritize sustainability in their investment strategies. Specifically, energy firms have the potential to augment their market value by intensifying their focus on environmental initiatives (Wanday et al., 2022).

Keywords: ESG, Capital Expenditure, Financial Performance, Energy Stocks, Revenue, Structural Equation Modelling

Authors’ individual contribution: Conceptualization — G.S.K.; Methodology — G.S.K.; Formal Analysis — G.S.K.; Investigation — G.S.K..; Resources — G.S.K.; Writing — Original Draft — G.S.K. and N.B.; Writing — Review & Editing — G.S.K.; Supervision — N.B.; Project Administration — N.B.; Funding Acquisition — N.B.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G30, G32, G39, M14, Q01

Received: 20.02.2025
Revised: 03.06.2025; 30.06.2025; 01.09.2025
Accepted: 16.09.2025
Published online: 19.09.2025

How to cite this paper: Kulkarni, G. S., & Belavadi, N. (2025). Environmental, social, governance factors and financial performance: Evidence from sensitive sector [Special issue]. Corporate Governance and Sustainability Review, 9(3), 190–199. https://doi.org/10.22495/cgsrv9i3sip1