Impact of environmental, social, and governance (ESG) performance on investment mix. New empirical evidence from non-financial firm in Pakistan

Authors

  • Dr. Tahira Awan Assistant Professor, Faculty of Management sciences International Islamic University Islamabad. Author
  • Anbreen Gul PhD Scholar, Department of management sciences International Islamic University Islamabad. Author

Keywords:

ESG, Investment decisions, Capital, Environmental, Performance, ESG score

Abstract

Integrating environmental, social, and governance (ESG) principles into investment decisions has garnered increased attention in the business landscape. This study investigates the intricate interplay between ESG performance and investment patterns (capital vs. environmental) within the corporate setting. It aims to identify the influence of ESG scores on earnings-driven investments (capital investment) and environmental investments, exploring potential trade-offs and implications for corporate decision-making. The analysis sampled nonfinancial sector enterprises in Pakistan from 2015 to 2023. To address endogeneity concerns, the system generalized method of moments (GMM) was employed for regression analysis. The findings revealed a significant positive correlation between ESG performance and earnings-driven investments (capital investment). However, a negative relationship emerged between ESG scores and environmental investments, indicating potential trade-offs between financial profitability and dedicated environmental spending within companies. Other variables, including firm size, debt ratios, cash holdings, and CO2 emissions, also significantly impacted investment patterns. The study’s outcomes provide valuable guidance for corporate managers navigating sustainable investment strategies. Emphasizing earnings-driven investments, particularly capital projects with a high ESG focus, could align financial objectives with sustainable practices, enhancing long-term viability and stakeholder trust. The insights from this study contribute to the broader discourse on responsible corporate practices and sustainability. The findings shed light on the complexities of balancing financial objectives with environmental responsibilities, emphasizing the need for a balanced approach that reconciles financial goals with ESG commitments. By dissecting the nuanced relationships between ESG performance and investment decisions, this study offers a novel perspective on the trade-offs companies face between different types of investments while pursuing ESG performance.

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Published

2024-03-31

How to Cite

Impact of environmental, social, and governance (ESG) performance on investment mix. New empirical evidence from non-financial firm in Pakistan. (2024). International Research Journal of Management and Social Sciences, 5(1), 880-900. http://irjmss.com/index.php/irjmss/article/view/353

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