Literature Review on the Impact of ESG on Financial Decision-Making

The integration of Environmental, Social, and Governance (ESG) factors into investment decision-making has gained significant attention in recent years. This paper investigates the impact of ESG factors on financial decision-making through the methods of literature review and theoretical analysis. It reviews the theoretical foundations of ESG investment, exploring its relationship with some financial models such as Modern Portfolio Theory (MPT) and multi-factor asset pricing models, and examines the role of ESG disclosures in shaping investor behavior, with a focus on both individual and institutional investors. Furthermore, the study analyzes the mechanisms through which ESG factors influence corporate financial performance and risk management, highlighting their impact on cost of capital, credit ratings, and firm valuation. In addition, the paper discusses regulatory frameworks and government policies that drive ESG adoption in global financial markets. As a result, this thesis finds that ESG factors generally have a positive correlation with corporate management decisions and investors' investment behaviors. The findings underscore the growing importance of ESG in corporate strategy and investment practices, reinforcing its role in promoting sustainable and responsible financial markets.