The relationship between ESG performance and financial performance: a systematic literature review

Abstract

Purpose – This study aims to examine the relationship between Environmental, Social, and Governance (ESG) performance and corporate financial performance (CFP) by synthesizing empirical evidence from peer-reviewed literature published between 2020 and 2025.

Design/methodology/approach – This study employs a systematic literature review in accordance with the PRISMA guidelines. A total of 158 peer-reviewed articles were sourced from the Scopus database and analyzed to identify patterns, theoretical underpinnings, moderating and mediating mechanisms, and research gaps in the ESG–CFP literature.

Findings – The review presents a fragmented landscape: 34.8% of studies find a positive relationship (supporting stakeholder theory), 29.7% report a negative relationship (aligning with trade-off theory), and 35.4% show neutral or conditional effects. The governance pillar boosts market performance, while the social pillar has generally positive impacts. The environmental pillar incurs short-term costs but yields long-term benefits in green industries. About 45% of studies explore moderators like firm size and board diversity that strengthen the ESG–CFP link, whereas audit quality and ESG controversies weaken it. Key mediators include innovation, reputation, and operational efficiency.

Originality/value – This study synthesizes research on the ESG–CFP relationship over the past five years, identifies key mechanisms, and proposes a comprehensive framework to address conflicting findings. It also highlights underexplored areas and suggests methodological improvements for future