ESG and financial performance: examing the difference between public and private firms

Abstract

This paper examines the impact of Environmental, Social, and Governance (ESG) factors on the financial performance of public and private companies. By focusing on private companies, we exclude public investors as stakeholders from the equation, shedding another perspective on the impact of ESG performance on a company’s financial bottom line. This paper revisits the salient question of whether profit-driven investors should care about ESG performance and, for the first time, extends the research to private companies. Private companies tend to exhibit a stronger relationship between ESG and financial performance, as social performance has a significantly stronger relationship with financial performance for private companies. Violations of the United Nations principles seem to reduce the return on assets for private companies more significantly.