The Influence of ESG Factors on the Companies Performance in Developed and Emerging Markets

Sustainable development and ecological, social, and governance (ESG) factors of company performance play an outstanding role in modern business. The purpose of this study is to compare the impact of ESG factors on the market performance of companies in developed and emerging markets. The author analyzed the panel data for 315 non-financial companies from seven industries from 2010 to 2020, operating in developed and emerging countries. The dependent variables are market indicators of companies, such as Tobin’s Q, P/S, and EV/EBITDA. The explanatory variables are the components of the ESG rating. As a research method, OLS regression was used, within which pool regression, and regression with a random and fixed effect were tested. The results of the study showed there is a positive impact of the ESG rating and its components on the market performance of companies in developed markets, while in emerging markets such a relationship was not confirmed. This indicates that ESG factors do play a role in the market valuation of companies by investors in developed markets, where over the past 10 years companies have been able to realign their business to a sustainable agenda. A similar trend can likely be found soon in emerging markets. The results of this study will be of practical use to companies planning a transition to the ESG trend as confirmation that a high ESG rating can increase their market performance.