ESG Performance and Corporate Financial Performance: Empirical Evidence from Chinese Listed Companies

Abstract

This study examines the relationship between ESG performance and financial outcomes among Chinese financial firms in the CSI 300 Index. Using ESG scores and financial data to analyze whether higher ESG ratings correlate with improved profitability (ROA) and market valuation (Tobin’s Q). Results reveal a weak linear correlation (ROA: r = 0.076; Tobin’s Q: r = 0.121), suggesting limited immediate financial impact. The most striking revelation is the apparent threshold effect in ESG performance. However, a threshold effect emerges: firms with ESG scores above the median (89.9) show 28% higher ROA (p = 0.023), indicating that substantial ESG commitments may enhance profitability. The extreme volatility in Tobin's Q values also hints that market perceptions of ESG value may be inconsistent or influenced by broader market sentiment. The findings suggest ESG benefits in China’s financial sector are non-linear, concentrated among top performers, and overshadowed by traditional financial drivers. For practitioners, these results imply that financial institutions should prioritize substantial, strategic ESG integration rather than incremental improvements to realize meaningful financial benefits.