This study investigates the empirical relationship
between Environmental, Social, and Governance (ESG) scores and the valuation of
publicly traded companies, using cash flows as a proxy for corporate value.
Drawing from the Thomson Reuters EIKON database, the research analyzes data
from 74 large firms across 16 countries over a ten-year period (2012–2021). A
longitudinal linear regression approach was employed, with ESG scores as the
independent variable and cash flows as the dependent variable, while firm size
was controlled using market capitalization. Results reveal a statistically
significant, positive correlation between ESG scores and cash flows for each
year analyzed, although the strength of this relationship is modest, with R²
values ranging from 0.122 to 0.189. These findings support the hypothesis that ESG
efforts contribute positively, albeit moderately, to financial performance. The
research aligns with stakeholder theory, highlighting how ESG initiatives may
enhance long-term value by addressing broader stakeholder interests. Despite
variability introduced by external events like the COVID-19 pandemic and
political cycles, the correlation remained consistent. This study expands upon
existing literature by uniquely focusing on cash flows as a valuation metric
and offering a decade-long, globally representative analysis. It offers
practical insights for corporate decision-makers and investors by reinforcing
ESG’s role in financial strategy and value creation.
