Is ESG a ‘Scam'? Correlation between ESG and Corporate Performance

Abstract

Environmental, Social, and Governance (ESG) are three factors to evaluate a corporation’s growth opportunity and investment risk. With the increasing attention to environment protection and corporate relationship and governance, ESG has become a hot and controversial topic in the investment world. The article focuses on the correlation between ESG performance and corporate performance in two typical corporations, Tesla and First Solar. Utilizing the PEST model to analyze Tesla’s performance and compare it with ESG, the article finds that Tesla’s performance is exceptional while its ESG is poor. By contrast, excavating First Solar’s financial data and analyzing a series of corporate indicators, the article discovers that First Solar is well known for ESG and sustainability but its profitability is very poor. Therefore, ESG is an important indicator but not a decisive one. ESG and corporate performance are not in a positive proportion. Poor ESG does not necessarily undermine Tesla's prosperity and commitment to sustainable development. First Solar’s great ESG does not mean strong profitability. The article aims to instruct investors to put ESG into perspective, evaluate a corporation from multiple angles, and make a good investment.