Environmental, social, and governance (ESG) impact on corporate financial strategy of energy and utilities companies worldwide

Researchers, academics and decision makers are increasingly interested in sustainability issues, in line with the global warming phenomenon that is currently occurring in the world. The term ESG (Environmental, Social, and Governance) has emerged in global efforts to tackle the environmental issue. The application of ESG index on companies is to rate the company's sustainability, ethics and corporate governance issues. However, this raises the question of whether the implementation of ESG practices in companies has a positive financial impact or otherwise. This research aims to evaluate the influence of the ESG index on the financial strategy of companies, including financial performance, market valuation, and market risk. The study involves 587 energy and utilities sector companies from 55 countries in 2022. The method used is PLS-SEM with SmartPLS 3.2.9 software. The highlight findings are that the environmental index is the most significant indicator in influencing the corporate financial strategy. Additionally, market valuation is the most influenced construct by the ESG index. The findings of this research can provide insights into the influence of the ESG index that can be used by business owners and decision-makers in allocating funds and formulating regulations. • This study investigates how the ESG Index influences financial performance, valuation, and market risk in energy and utilities firms. • The overall ESG Index demonstrates the strongest and most consistent effect on firms’ market valuation. • Each ESG pillar, Environmental, Social, and Governance, exerts a distinct impact on corporate financial strategies. • The Environmental pillar shows the greatest influence on shaping the overall financial strategy of energy firms.