Research on the Association between ESG Disclosure and Corporate Financial Performance: Based on Data from Hong Kong Listed Companies

Abstract

Propelled by the global movement toward sustainable development, environmental, social, and governance (ESG) disclosure has transitioned from being a voluntary initiative to becoming a central indicator for evaluating a firm’s non-financial performance. Nowadays, whether it is investors with capital or regulatory authorities in charge of the market, they are all pressuring enterprises to clarify their ESG performance—either by including it in the annual report or by issuing a separate sustainability report. Transparency has become a mandatory requirement. However, whether in academic research papers or industry practice observations, there has been no consensus reached on whether ESG disclosure can truly enhance corporate financial performance. On one side, empirical evidence supports a positive link: high-quality ESG disclosure is found to help enterprises build a strong reputation, reduce capital costs during financing, and thereby boost financial performance. On the other side, contrasting views exist: ESG-related investments may increase firms’ short-term cost burdens, which in turn places pressure on financial returns. Hong Kong is an international financial center, and its listed companies are in a rather unique position: they have to be scrutinized under a “magnifying glass” by global investors while also strictly adhering to local regulatory rules. This kind of enterprise practice under dual constraints precisely provides a unique research sample for exploring the intrinsic connection between corporate environmental, social, and governance (ESG) disclosure behavior and financial performance levels. This research project is based on the data of Hong Kong-listed companies from 2015 to 2023, aiming to deeply explore the correlation between environmental, social and governance (ESG) disclosure and financial performance of enterprises, while comparing the differentiated impacts across environmental, social, and governance dimensions. These findings are expected to offer practical insights of value to businesses and regulatory authorities, providing assistance for their decision-making.