The integration of environmental, social, and governance metrics and market value: A multi-dimensional analysis of corporate sustainability and financial performance

Abstract

This study examines the relationship between environmental, social, and governance (ESG) practices and financial performance among Hong Kong’s Hang Seng Index (HSI) firms, addressing sector-specific and regional ESG gaps in Asian markets. While prior studies emphasise ESG’s financial impacts in Western contexts (Al Farooque et al., 2022; Askarany & Xin, 2024), Asian dynamics remain underexplored. Using panel data analysis of 83 HSI-listed firms (2019–2024), this research applies legitimacy theory to evaluate how ESG disclosures and sectoral challenges, including Hong Kong Exchanges and Clearing Limited’s (HKEX) 2020 reporting mandates, affect financial outcomes (return on assets [ROA] and Tobin’s Q). Results show robust social performance consistency (CV = 0.09–0.12) across sectors, contrasting with environmental variability (CV = 0.17–0.32), indicating varying sustainability maturity. The commercial sector achieved superior returns (ROA = 11.91 per cent), while utilities demonstrated balanced ESG integration. Findings highlight the need for sector-specific ESG standardisation and regulatory compliance to improve governance. This study provides actionable insights for policymakers refining disclosure frameworks and corporations aligning sustainability strategies with profitability in emerging markets.