The Role of Sustainable Financial Practices in Shaping Corporate Risk

This study investigates the impact of sustainable financial practices, expressed through ESG (Environmental, Social, Governance) performance, on corporate bankruptcy risk, using the Altman Z-score as a predictive indicator. The research aims to determine whether the integration of sustainability criteria contributes to strengthening firms’ financial resilience. A balanced panel of 20 multinational companies, covering diverse sectors (technology, energy, automotive, consumer goods, retail) and the 2020–2024 period, was analysed. Variables included ESG component scores, profitability ratios (ROA, ROE), and leverage, with data processed through econometric panel regression with fixed effects. Results indicate that profitability, particularly ROA, is the strongest determinant of lower bankruptcy risk, while excessive reliance on equity returns (ROE) may increase vulnerability. Governance exhibits a marginal but positive role in mitigating risk, whereas environmental and social dimensions show no significant short-term effects, possibly due to implementation costs and delayed benefits. Leverage, contrary to theoretical expectations, was not statistically relevant in the model. Sectoral analysis revealed strong performance and stability in Technology & IT, contrasted by volatility and weaker ESG integration in Retail & Luxury. The findings highlight the importance of combining traditional financial indicators with ESG metrics for comprehensive risk assessment. From a practical perspective, integrating sustainability – especially governance – into corporate strategy can enhance resilience, inform investment decisions, and support long-term financial stability.