ESG and Corporate Financial Performance: How Environmental, Social, and Governance Factors Influence Stock Prices - A Comprehensive Literature Review

Abstract

ESG, which stands for Environmental, Social, and Governance, is critical in measuring company investments' sustainability and ethical impact. By focusing on ESG factors, companies aim to achieve financial profits while contributing to social and environmental welfare, ultimately enhancing their overall performance and competitiveness in the market. Companies with strong ESG performance often show improved financial results, including increased stock value. This study aims to collect and analyse articles on how a company's ESG practices attract investors and influence market perception of its stock value. The research methodology involves a literature review, with articles from platforms such as ScienceDirect, Publish or Perish, and Google Scholar focusing on those published between 2016 and 2024. The findings indicate that ESG practices significantly influence stock prices, with stocks having high ESG ratings, also known as "green stocks," offering higher returns for investors.