Strategic Value of ESG Integration on Organizational Performance: Evidence from Sectoral Analysis

Abstract

This paper critically reviews the strategic position of environmental, social and Governance (ESG) in corporate strategy focusing on differences across industry sectors. Using simulated data and global investment data, this research de-constructs ESG into its constituents and assesses their differential impact on firm performance within-industry sectors. The studies show that environmental factors have a significant effect on the level of energy, manufacturing companies' cost reduction and productivity improvement and good governance structure reduces valuation uncertainty and strategic value enhancement in financial, technology industry. Measures for the social sustainability, especially in sectors with a high share of manual labour, increase the trustworthiness of stakeholders and effectiveness of employees. This paper takes the debate forward by framing ESG integration in governance and risk management views, leaving behind compliance‐based approaches towards an understanding of ESG as a strategic tool for value creation and long run sustainability. Importantly the research demonstrates that sector weightings in the ESG space are contributing to performance.