Environmental, Social, Governance (ESG) and Financial Performance of Firm in the Context of Corporate Governance Code 2019 in Pakistan

Abstract

Environmental, Social, and Governance (ESG) practices are somehow matured in advanced countries. However, yet these are the matter of concerned in under-developed countries like Pakistan. Accordingly, this research study empirically investigates the ESG overall and individual components i.e. E, S, and G on FP in the context of corporate governance code 2019 in Pakistan. This study employed two stage least squares (2SLS) model to PSX 100 index for the period of five years from 2017 to 2021(pre-period 2017-18) (post-period 2020-2021) in Pakistan. The latest corporate governance code 2019 was considered as the base year. Based on three approaches of stakeholder theory, the results investigate that ESG overall and its individual factors i.e. environmental (E), social (S) and governance (G) have positive impacts on FP in the context of corporate governance code 2019 in Pakistan. These findings designated that there is a substantial growth in the level of ESG practices and relevant strategies in Pakistan. This rise has been amplified by the government initiatives such as amended corporate governance code 2019. Finally, on the basis of the results, the study strongly recommends that ESG practices have positive impacts on financial performance on listed firms in Pakistan. However, regulatory bodies need to consider the effective ESG practices by firms to provide better results in Pakistan. The results finding provide an important understanding for ESG practices in developing countries like Pakistan. The outcomes of the study provide an important insight for all the stakeholders i.e. government bodies, practitioners, researchers, academic circles, banks, and Securities and Exchange Commission of Pakistan (SECP) etc. 

Keywords: Environmental, Social, Governance (Esg), Corporate Governance Cod 2019, Financial Performance, Roa, Tobin’s Q