ESG incidents and financial performance: Evidence from Korea

Abstract

This study investigates the impact of ESG (environmental, social, and governance) incidents on financial performance, focusing on KOSPI 200 companies from 2019 to 2023. Using ROA and ROE as proxies for profitability, we conduct panel regression analysis to control for firm- specific factors. The results show a significant negative relationship between ESG incidents and financial performance, driven primarily by governance risks. In contrast, environmental and social incidents show weaker or insignificant effects after accounting for firm fixed effects. Our findings highlight the importance of governance in shaping financial outcomes and support stakeholder theory by demonstrating the material impact of ESG risks on firm profitability.