The ESG impact on corporate financial performance in developing countries: A systematic literature review

Abstract

Corporate Environmental, Social and Governance (ESG) practices have drawn significant academic interest over the last decade. While an extensive part of ESG literature investigates the relationship with corporate financial performance (CFP), most studies have focused on developed countries. This review analyzes the empirical evidence around four key aspects of the ESG CFP relationship in developing countries. Furthermore, this review reveals four evident research gaps and sheds light on two notable ESG research limitations in developing countries. We conducted the review using a systematic approach for constructing the article collection. We analyzed a collection of empirical articles discussing the relationship between ESG and CFP that were extracted from the Web of Science database. It is of interest to note that the articles available on the Web of Science databases are generally available on other research databases such as Scopus. This review shows that while most studies in developed countries indicate a positive relationship, the evidence around ESG and CFP in developing countries remains fragmented. Hence, this review confirms the need for further research in developing countries in more convergent directions. ESG-related reviews have mainly addressed literature about developed countries. To the best of the authors’ knowledge, this is the first review addressing the ESG impact on CFP in the context of developing countries. The extracted articles were gathered from the Web of Science database for its extensive journal coverage as of May 2021. The authors acknowledge that there may be further articles on the topic which were not available on the Web of Science database as of the research date. Keywords: ESG, Environmental Social Governance, Corporate Financial Performance, Emerging countries, Literature review. JEL Classification: G3 Paper type: Theoretical Research