The Impact of ESG Scores on Corporate Financial Performance: The Case of Global Automotive Companies

Abstract

Environmental, social, and governance (ESG) practices are increasingly important in the automotive industry, yet their relationship with corporate financial performance (CFP) remains inconsistent. This study examined the relationships between individual ESG dimensions and CFP, including whether financial performance supports subsequent ESG improvements. A longitudinal design analyzed 16 global automotive companies during 2015–2023, yielding 144 firm-year observations. ESG scores and 12 financial indicators were obtained primarily from Bloomberg. Analyses employed generalized least squares regression, Arellano–Bond dynamic panel estimation, and structural equation modeling. Environmental scores were positively associated with current liquidity, interest coverage, and market valuation, but negatively associated with asset turnover. Lagged environmental scores positively predicted returns on assets and equity. Governance scores showed mixed relationships, including positive associations with operating cash flow and asset turnover, negative associations with current liquidity, and a positive lagged association with Tobin’s Q. Social scores were generally insignificant across most specifications. Structural equation modeling identified significant associations involving environmental and governance dimensions, consistent with potential feedback between sustainability and financial performance. ESG–CFP relationships vary by dimension, financial indicator, and timing. Automotive companies should prioritize environmental and governance initiatives while recognizing financial tradeoffs and the limitations of causal interpretation.