The impact of ESG ratings on corporate performance

Abstract

As the concept of sustainable development becomes increasingly popular, Environmental, Social, and Governance (ESG) ratings have become a key metric for assessing a company's comprehensive value and long-term resilience. This paper aims to systematically explore the mechanisms by which ESG ratings influence the multidimensional performance of companies. This paper first examines the theoretical origins of ESG and its core theories linking it to corporate performance (such as stakeholder theory and the resource-based view), establishing its analytical framework. Then, by integrating empirical research and case studies from multiple industries, it provides an in-depth analysis of the impact of ESG ratings on companies' financial performance (such as profitability and market valuation) and non-financial performance (such as employee satisfaction and brand reputation). This research reveals that superior ESG performance not only improves financial metrics by reducing financing costs and improving operational efficiency, but also enhances a company's long-term competitiveness and risk resilience by strengthening stakeholder trust and building sustainable brand equity. Case studies further demonstrate the diverse successes and common challenges faced by different companies in implementing ESG strategies. The paper concludes by emphasizing that ESG ratings, far from being a passive responsibility, are a strategic core for companies to drive innovation and achieve sustainable competitive advantage. Accordingly, companies should deeply integrate ESG into their corporate strategies and business processes to achieve the synergistic creation of economic and social value. Finally, looking ahead, the article proposes further exploration of the cross-national and cross-industry boundary conditions for the effectiveness of ESG ratings based on institutional theory and a comparative perspective.