Conceptualising environmental, social, and governance linking with financial leverage and corporate financial performance

Abstract

Environmental, social, and governance (ESG) performance is used by businesses to increase their financial resilience in reaction to an ever-more volatile business setting and threatening long-term sustainability contexts. This is a conceptual review study to explore the effects of financial leverage on the relationship between ESG performance and corporate financial performance. This study adopts re-examining the indirect effects of financial leverage, the foundation of corporate ESG performances, and its influences on corporate financial performance from the course of existing and prominent research works and literature. The study reveals that corporate Environmental(E), Social(S), and Governance(G) performances influence better financial performance irrespective of sectors, states, and regions with some minimal exceptions. Moreover, ESG performance positively affects the sources and costs of financial leverage which promotes increasing corporate financial performance. These findings are consistent with previous research on the rising value of corporate ESG performance, financial leverage, and the positive and mediating effects of firms adopting an ESG strategy on corporate financial performance.