Environmental, Social, Governance and Workplace Safety impact on firm financial performance in Pakistan: Pre & Post Compulsion Analysis
Abstract
This study investigates the impact of environmental, social, governance, and safety (ESGS) factors on the financial performance of firms listed on the Pakistan Stock Exchange (PSX). Adopting a postpositivist framework, the study formulates and empirically tests hypotheses derived through deductive reasoning. Focusing on both financial and non-financial firms, the study encompasses 551 companies across 37 sectors.
The research uses secondary data extracted from yearly reports using pooled Ordinary Least Squares (OLS) regression analysis across two distinct periods: 2012–2016 and 2017–2021. The dummies used to code (0,1) for ESGS items indicate whether or not they are present in the reports. Using a stratified proportional sampling approach, we can ensure a fair representation of every industry, resulting in a sample size of 384 firms that closely represent the entire population.
Through pooled OLS regression analysis, the study explores the association between ESGS factors and financial performance indicators ROA and EPS. The control variables were the dividend yield, leverage, market to book, debt ratio, firm age, and firm size.
The study shows that there is a positive correlation between ESGS factors and firms’ performance over the entire regression period. Different from environmental factors that have substantial positive impacts on ROA and EPS, social, governance, and safety dimensions lag behind them. However, in this study, control variables are associated in a different way with financial performance measures.
The insights highlight the need to integrate environmental, social, governance, and safety (ESGS) factors in a company’s strategy to boost financial performance and build sustainable value. This report can be of great help to companies looking to tackle sustainability challenges and achieve better financial outcomes in the competitive landscape of Pakistan.
