ESG Performance and Corporate Financial Performance: Disentangling
Sector Effects

Shritha Shetty Puvvadi

doi:10.46609/IJSSER.2026.v11i08.042

Title: ESG Performance and Corporate Financial Performance: Disentangling Sector Effects
Authors: Shritha Shetty Puvvadi
Journal: International Journal of Social Science and Economic Research (IJSSER) ISSN: 2455-8834 Volume: 11 Issue: 8 Publication Date: August 2026 DOI: 10.46609/IJSSER.2026.v11i08.042
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Shritha Shetty Puvvadi Oakridge International School Newton Campus
MLA 8 Puvvadi, Shritha Shetty. "ESG Performance and Corporate Financial Performance: Disentangling Sector Effects." Int. j. of Social Science and Economic Research, vol. 11, no. 8, Aug. 2026, pp. 4304-4320, doi.org/10.46609/IJSSER.2026.v11i08.042. Accessed Aug. 2026. APA 6 Puvvadi, S. (2026, August). ESG Performance and Corporate Financial Performance: Disentangling Sector Effects. Int. j. of Social Science and Economic Research, 11(8), 4304-4320. Retrieved from https://doi.org/10.46609/IJSSER.2026.v11i08.042 Chicago Puvvadi, Shritha Shetty. "ESG Performance and Corporate Financial Performance: Disentangling Sector Effects." Int. j. of Social Science and Economic Research 11, no. 8 (August 2026), 4304-4320. Accessed August, 2026. https://doi.org/10.46609/IJSSER.2026.v11i08.042.
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ABSTRACT: This paper examines the relationship between Environmental, Social and Governance (ESG) performance and corporate financial performance using a panel dataset of S&P 500 companies for the period 2015 to 2023, comprising approximately 2,614 firm-year observations. The study employs two empirical approaches: sorting firms into portfolios by ESG quartile, and fixed effects panel regression on three financial performance measures, namely Return on Assets (ROA), Tobin’s Q, and Return on Equity (ROE). The portfolio sort shows that firms in the highest ESG quartile earn 6.2 percentage points lower stock returns and 0.86 percentage points lower ROA than firms in the lowest ESG quartile. However, panel regressions with both industry and firm fixed effects show that the ESG coefficient is statistically insignificant across all six main specifications. The observed negative univariate association is driven by systematic sectoral differences: ESG-intensive industries such as Utilities and Energy are structurally lower-return, while ESG-light sectors such as Information Technology are structurally higher return. A pillar-level breakdown provides marginal cross-sectional evidence of a positive association between environmental performance and ROA, but this is not robust to firm fixed effects. The results indicate that, once firm- and industry-specific heterogeneity is controlled for, ESG performance neither improves nor harms corporate financial performance for large-cap U.S. firms. These findings emphasise the importance of methodological rigour, especially the use of fixed-effects controls, in ESG research.

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