The Impact of ESG Ratings on Market Outcomes of Chinese Listed Companies

Abstract

The ESG (Environmental, Social, and Governance) evaluation framework has arose as a critical metric for assessing corporate sustainability. While opinions on the role of ESG diverge, some argue that it enhances enterprise value, whereas others caution against potential greenwashing practices, which could mislead stakeholders. Conducting data analysis on Chinese listed companies between 2010 and 2023, we employs panel regression models to assess the influence of Huazheng ESG ratings on market outcomes, as measured by ROA and ROE. Our analysis incorporates controls for fixed effects across both industry and year dimensions to ensure robust findings. The results reveal that enhancements in Huazheng ESG ratings significantly correlate with improved financial outcomes. The initial robustness check demonstrates that Bloomberg ESG and Wind ESG ratings similarly exhibit a significant and positive relationship with market outcomes. Further analysis reveals that the lagged overall ESG rating, Social rating, and Governance rating have significant positive correlations with the current period's ROA and ROE.