The Impact of ESG Performance on Corporate’s Financial Performance: Evidence from China’s Automobile Manufacturing Industry

Abstract

Corporate’s environmental, social, and governance (ESG) ratings, as an emerging indicator of corporate’s ESG performance, have attracted the attention of many investors and institutions. Therefore, many companies are actively enhancing their ESG performance to show their fulfillment of social responsibility. However, corporates invest their money on improving ESG performance instead of necessary expenditures. Does the investment worth it? This paper takes three important companies in China's automobile manufacturing industry as examples, lists the companies' ESG performance from multiple aspects, and collects sufficient financial indicators to reflect corporate’s financial performance. Result shows that the increase in corporate ESG performance will lead to a decline in overall corporate performance in the short term, but it will have a positive effect on the long-term financial performance of the corporation. Companies which aim for improving ESG performance will gain the recognition of investors and benefit the long-term growth of the corporation, for it is a correct understanding and practicing of social responsibility. This conclusion can be extended to China's automobile manufacturing industry and provide an example for other companies in the industry.