Assessing the Impact of ESG Performance on Financial Outcomes and Firm Valuation: Sector-Wise Evidence from US Markets

In previous studies, ESG scores have been seen to influence profitability and market performance. The objective of the study is to evaluate the effects of ESG on Return On Assets (ROA) and market capitalization in three different US sectors in the S&P 500. Panel data from more than 300 companies across the financial, healthcare, and IT sectors, spanning 2015 to 2023, were used. The research framework employed Feasible Generalized Least Squares (FGLS) and a range of tests to detect and correct for multicollinearity, Autocorrelation, and heteroskedasticity. The results indicated that, in the finance sector, out of the three ESG scores, only the governance score has a significant and positive impact on ROA. On the contrary, market capitalization is substantially influenced by the environment score and governance score in the finance sector. Moreover, a direct impact of environment and governance score on market valuation exists. In the healthcare sector, all the individual ESG scores were significant. In the IT sector, only the governance score was significant. These results can be used to help other researchers and help with policy implications with respected companies. Hence, the study demonstrated that ESGs have a significant impact on firms.