Abstract
The purpose of this research – to explore the effects of ESG (environmental, social, and governance) practices on firm financial sustainability in developed and developing economies. Methodology – Panel regression analysis is used to test the effects of ESG practices on financial sustainability by controlling year, sector, and country fixed effects. Financial performance is estimated based on Tobin’s Q, while ESG practices are measured using ESG scores obtained from Eikon’s ASSET4. The final sample consists of 34,953 fi rm-observations from 49 countries from 2002 to 2022. Originality/value of the research – This work offers important implications for various stakeholders by providing new insights into the relationship between ESG practices and financial sustainability of public fi rms operating in different countries and highlighting the role of country-level economic conditions in promoting corporate ESG initiatives and sustainability. Findings – The study shows that the individual and composite ESG practices can substantially improve financial performance. The results also show that the positive impacts of environmental and social initiatives and the overall ESG practices on financial well-being are more pronounced for fi rms from developed economies. Further analysis verifies that improved ESG practices may increase financial stability, measured as the Altman’s score.