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Global Research journal of Natural  
Science & Technology (GRJNST)  
Volume: 04 - Issue 2 (2026), 2055  
ISSN P: 2790-7643 ISSN E: 2790-7651  
www.grjnst.net  
https://doi.org/10.53762/grjnst.04.02.07  
Relationship Between Esg Ratings and Financial Performance of Heavily  
Polluting Industries  
Received: 29 December 2025. Accepted: 29 January 2025. Published: 31 March 2026  
Sayed Besmillah Sultani  
Public Management and Urban Culture  
Anhui University of Science and Technology  
Corresponding Author: Sayedbesmillah786@gmail.com  
Gou Yanfeng(苟延峰)  
Public Management and Urban Culture  
Anhui University of Science and Technology  
gouyanfeng83@163.com  
Mohammed Aqil Sultani  
Department of Economics, Kabul University  
aqilsoltani773@gmail.com  
GRJNST, Volume: 04 - Issue 2 (2026) / ISSN P: 2790-7643  
Article ID: 2055  
https://doi.org/10.53762/grjnst.04.02.07  
Copyright © 2026 GRJNST. This article is published under an Open Access model. It is made available to the public under the terms of the Creative  
Commons Attribution 4.0 International (CC BY 4.0) license, which permits unrestricted use and distribution  
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Abstract: The paper discusses the relation between Environmental, Social and  
Governance (ESG) performance and financial performance of the both the  
industries which are highly polluting in regards to profitability, market value,  
cost burden and risk reduction. It is analyzed in a quantitative form which is  
based on secondary data and the firms are divided into high, medium and low  
ESG performers. The results indicate that the percentage of high, medium and  
low ESG companies is 38, 42 and 20 respectively that implies that the  
industries are in a transitional stage of environmental scanning with ESG. The  
results indicate that there is a positive correlation between the ESG  
performance and profitability with the high ESG firms that reported an average  
of 18 proportion of profit margin compared to 14 and 10 proportion of profit  
margin of medium and low ESG firms respectively. Similarly, high ESF  
companies (22) relative to medium (16) and low (11) have greater growth in  
market values because of the preference of sustainable companies by investors.  
However, the realization of ESG is associated with the high-cost burden  
because ESG related costs increase by 26 percent that is greater than the  
revenue increase in the short term of 19%. The paper also mentions that, ESG  
plays a role in risk management, with high ESG firms having a smaller risk (30  
percent) when compared to medium and low ESG firms (22 and 14 percent,  
respectively). In addition, the ESG ranks with a long-term financial impact (24)  
that is two times as much as its short-term impact (12), and this will serve to  
demonstrate its strategic importance. Overall, the findings suggest that, despite  
the fact that ESG investments may create short-term profitability, it has much  
to offer to the long-term financial performance, growth, and minimization of  
risks in highly polluting sectors.  
Keywords: ESG rating, financial performance, information  
1. Introduction  
This concept of Environmental, Social and Governance (ESG) has gained prominence  
over the last few years as the achievements of companies are evaluated particularly in the  
direction that is considered as the environmentally sensitive one. These include the  
energy, mining, chemicals, and manufacturing industries, among the most polluting  
industries that are under strain by the regulators, investors, and the society to go green  
and reduce their impact on the environment (Song, 2023) . ESG ratings have already  
become a normalized tool to assess the capability of companies to address the risks and  
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opportunities linked to sustainability and have become a mandatory factor in the  
modern investment and corporate decision-making (Naeem, Cankaya & Bildik, 2022).  
The ESG performance-financial performance correlation has become one of the most  
important issues of interest among scholars and practitioners. The classical businesses in  
the polluting industries were oriented towards profitability, and not on social and  
environmental concerns. However, this attitude has changed due to heightened  
awareness on the problem of climate change, environmental degradation and corporate  
responsibility. Companies are now considered to strike a balance between financial  
performance and sustainability that leads to the consideration of ESG requirements in  
the strategic planning and operation. This movement leads to an actual question i.e.  
whether the improved performance in ESG enhances or constrains financial  
performances i.e. in a sector where compliance costs are relatively high (Zhang & Jung,  
2023)  
There are numerous effects that the ESG involvement can have on the financial  
performance, theoretically (Makridou, Doumpos & Lemonakis, 2024);. On the one  
hand, good ESG activities may raise the cost of operations due to investing into cleaner  
technologies, complying with regulations, and social activities. On the other hand, these  
practices can enhance the firm images, attract responsible investors, reduce risks and  
increase profitability in the long-term. Environment risk may be particularly influential  
in determining the worth of the company and sustainability in the realm of highly  
polluted sectors (Yin et al., 2023).  
The factual linkage between ESG rating and financial performance is inconclusive  
although there exist more studies. Other studies show the relationship to be positive  
implying that the better the scoring firms, the better the financial results of the firm is  
due to the efficiency and trust among stakeholders. The other individuals feel that other  
expenses are incurred in the implementation of ESG which can have adverse impacts on  
the short-term profitability. This paradox presents a significance of more studies,  
particularly in the high-impact sectors where sustainability-financial outcomes trade-offs  
are more evident (Nguyen et al., 2021).  
The study will aim at researching the relationship between ESG rating and financial  
performance of highly polluting industries. The evaluation of key financial indicators  
and the evaluation of ESG indicators will help the study find out whether sustainability  
indicators lead to financial prosperity or they undermine achievements. (Dasilas &  
Karanović, 2025).  
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1.1 Problem Statement  
The companies in the most polluting sectors are being forced to spend a significant sum  
of their operation budgets on ESG compliance which sometimes is even more than a  
third of all expenditure on sustainability. This brings a felt contradiction between  
environmental accountability and monetary outcome whose immediate gain may  
diminish considering long-term income is not guaranteed. According to empirical  
research studies, although a large proportion of firms say that they are expanding their  
ESG ratings, only slightly more than half of them indicate the rise in financial  
performance, means that there is no balance between sustainability effort and financial  
outcomes (Chen et al., 2022).  
Along with this there is the growing cost on the environmental policies, carbon  
reduction plans and social responsibility programs that is rapidly growing at a faster rate  
than the rise in revenues of most of the high-impact businesses (Li, Hu & Hong, 2024).  
This puts the business entities into a scenario of achieving increased cost of operation  
without financial benefits. In the meantime, the expectations of the investors are also  
evolving as a growing percentage of institutional investors are becoming interested in  
companies that do not disregard ESGs, yet the direct financial impact of the trend is not  
always visible in the performance of companies (Abdi, Li & Càmara-Turull, 2022). This  
puts the managers at a cross-road as to which level of ESG investment is the best.  
The other major issue is the variation between the ESG performance of the firms in the  
same industry. As much as it is possible to find a number of firms who have been able to  
achieve high ESG rating and have enhanced their market value, the same number of  
firms cannot translate sustainability activities into financial success. This skewed  
distribution suggests that ESG-financial performance relationship is neither a  
homogenous relationship nor may be subject to influence under different situational  
factors that were considered such as firm size, governance and market environment  
structure(Xu & Zhu, 2024).  
1.2 Research Gap  
Despite the fact that the mass of knowledge on the topic of the ESG and financial  
performance has been established, the knowledge of how such a relationship functions  
within the industry with a high degree of pollutant emissions leaves much to be desired.  
The large part of the existing literature is not properly represented by high polluting  
sectors, as it is built on the general or mixed-industry samples, with the environmental  
effect being relatively moderate. As a result, the specificity of the cost system and  
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regulation requirements of these industries cannot be reflected in the current research  
(Xu & Zhu, 2024).  
In addition, the majority of the studies are focused on the developed economies whose  
regulatory frameworks and sustainability practices are highly developed. Quite on the  
contrary, the new markets possess their dynamics, and the degree of ESG awareness,  
compliance with regulations, and financial restrictions are varying. This produces an  
incongruity of the results as the relationship in one case may not directly be applied to  
another (Domanović, 2022).  
The other gap area is connected with the methodology of measurement because the  
majority of studies are grounded in the individual dimensions of ESG but not in the  
overall analysis. The environmental factors receive much attention of the research, and  
the social and governance aspects receive a comparative secondary attention. The  
possibilities of observing the synergistic impact of ESG on financial performance are  
limited by this fragmented approach (Matakanye, Van Der Poll & Muchara, 2021).  
Furthermore, the existing studies tend to be more focused on short-term financial  
indicators and little importance is given to the performance of long-term performance.  
Even though the fact that the lower-return of ESG investments may be attained in the  
short run is partially supported, its long-term benefits in risk reduction and value  
creation have not been effectively studied. This is due to the fact that this lacks a  
longitudinal study of the influence of ESG on financial performance as it progresses,  
particularly in industries with high levels of environmental impacts (Gull et al., 2022).  
1.3. Research Questions  
1.  
To what extent do improved ESG rating have impacts on the financial  
performance of a company in highly polluted industries in terms of profitability and  
market value?  
2.  
3.  
What is the cost-financial returns association between ESG-related costs and the  
financial returns over the firms in the environmentally sensitive industries?  
To what extent do ESG activities lead to long term financial stability versus  
short term financial performance of high pollution industries?  
1.4. Research Objectives  
1.  
To examine the relationship between the ESG ratings and the financial  
performance measures of the polluted industries.  
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2.  
To determine the implications of investments related to the sensitivity of the  
environment to profitability and operational efficiency in environmental sensitive  
industries.  
3.  
To study the financial effect (short and long-term) of the ESG practices on the  
companies in the high-pollution industries.  
2 Literature Review  
Sandberg, Alnoor & Tiberius, 2023 talk about the relation between environmental  
performance and financial performance and explain that higher environmental  
disclosures are associated with the high market valuation of the company and the trust  
of the investor. According to their study, environmental reporting transparency may  
help to reduce information asymmetry that is likely to have a positive effect on the  
performance of the firm. This is particularly important within the environment of the  
highly polluting industries where accountability on the side of the stakeholders is much  
needed. Those companies that disclose environmental operations have a better chance of  
building a relationship of trust between themselves and the investor and the regulators  
which can be translated into monetary benefits. However, the study also states that the  
impact is not universal across all the companies that implies that efficiency of the ESG  
practices depends on the way they are conducted and reported.  
The article (Naimy, El Khoury & Iskandar, 2021) is devoted to quality of ESG  
disclosures and their financial performance implication. The study believes that all the  
ESG reporting may not have yielding positive financial outcomes; the trustworthiness  
and the stability of the disclosures proves to be considerable. The reporting of ESG  
quality is better placed in enhancing better decision-making among investors, and also in  
reducing uncertainty that can result in poor financial performance. The plausibility of  
ESG disclosures is further imperative in an industry with high pollution rates, where the  
environmental risks are an issue of high concern. The paper notes that firms that engage  
in symbolic or shallow ESG reporting may not achieve as much financial benefits as  
firms that engage in sustainability.  
The article by (Zheng, Khurram & Chen, 2022) provides an untimely theoretical  
background of corporate environmental responsibility and its relationship with the  
business performance. This paper suggests that environmental issues should be factored  
in the corporate strategy in order to be long-term sustainable. This incorporation can be  
imposed in the manufacturing procedures and consumption of resources that can  
frequently be radical to the lean of exceedingly contaminating sectors. This may be  
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expensive in short term outlook, but in the long term one may have a positive advantage  
of efficiency and reduced environmental hazards. Shrivastava says in his work that with  
the help of environmental performance, it is necessary to view it as a competitive  
strategic advantage and not a regulatory cost.  
We may think of (Tabur & Bildik, 2025) who speak about the broader concept of  
corporate social responsibility (CSR), that is closely associated with ESG. According to  
their research, CSR activities may enhance performance of the firm, by building a  
relationship with the stakeholders, employee engagement and brand image. Good CSR  
practices can be used to counter high environmental impact of industries to provide  
corporations with legitimacy. The authors also note that financial performance has a  
relationship with CSR, which is determined by the context like nature of the industry  
and expectations of the stakeholders. This would suggest that the ESG activities within  
the high pollutant industries may have different financial outcomes as compared to the  
less important.  
The study of research (Chininga, Alhassan & Zeka, 2024) focuses on the role of the  
ESG performance on the accessibility to the access to the finance. Their findings  
indicate that capital limits are minimized in the majority of the cases in companies that  
have higher ESG rating as being perceived less risky and more sustainable by investors.  
This is particularly in the very polluting industries where the cost of capital might  
increase because of the environmental risks. By improving ESG practice, companies will  
be in a position to attract wider investors, and also finance in better terms. According to  
the research, the practices of ESG have an impact on the internal operations of the  
company, as well as on the external relationships of finances.  
According to the authors (He, Jing & Chen, 2023), sustainability accounting and  
reporting play a key role in the context of connecting ESG performance to financial  
performance. Based on their work, contemplation using sustainability metrics can be  
encompassed into the normal accounting systems in such a manner that they are able to  
provide a more comprehensive picture of the firm performance. ESG factor can be  
reported at a financial reporting, whereby industries with high amounts of pollution can  
be incorporated and the costs can be high such that managers make good decisions. The  
other factor that has been highlighted in the study is that the enhanced sustainability  
reporting can result in raising transparency and accountability which are key factors to  
investor confidence.  
The authors (Zhou, Liu & Luo, 2022) focus on the role of corporate governance in the  
definition of the performance of ESG. Based on their study, proper governance  
structures are required in the assurance of proper implementation of sustainability  
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practices. In the extremely polluting industries, the governance procedures are quite  
applicable in the endeavor to reconcile the environmental obligations with the economic  
interests. The study is biased towards the fact that a properly developed governance  
system is able to assist firms to manage ESG risks and achieve good financial  
performance. This demonstrates the importance of governance being one of the aspects  
of ESG performance that should be given attention.  
Empirically, (Alfalih, 2023) show that corporate social responsibility is related to  
financial performance and thus came to a conclusion that, socially responsible firms are  
able and tend to perform equally or even better than other companies of the same  
caliber but not socially responsible. Their findings are a challenge to the traditional  
understanding of sustainability projects that should result in a reduction in profitability.  
This perception particularly applies to businesses in the sector with a high degree of  
pollution whereby companies may perceive ESG investments as costly. The study shows  
that ESG practices may lead to creation of values rather than destruction of values in the  
right way.  
The analysis of corporate social performance is built on the approach of stakeholder  
(Baran et al., 2022). Their publication points out that firms should fulfill the  
expectation of their different stakeholders that comprise investors, regulators, customers  
and communities. In the context of ESG, it would mean that firms in the very polluting  
industries should make sure that they control the environment and social responsibilities  
and financial performance. The study observes that failure to meet the requirements of  
the stakeholders can lead to the reputational losses and financial losses but the efficiency  
in managing the stakeholders can lead to the increase in the firm value.  
3. Research Methodology  
3.1 Research Philosophy  
The philosophy of research adopted in this study is positivism since it emphasizes on  
objectivity, measurement and empirical validation. The philosophy applied is the correct  
one since the variables being analyzed, which are quantifiable, are ESG ratings and the  
financial performance indicators. The study will rely on observable and measurable data  
in an effort to establish generalizational association and minimize the issue of  
subjectivity.  
3.2 Research Approach  
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The deductive research method is taken into account, and the current theories of ESG  
and financial performance are used as a reference. In these theories, an assumption is  
made on the relationship between ESG rating and financial performance. They are then  
tested using the empirical data analysis and thereby rendering the study systematic and  
theory based.  
3.3 Research Strategy  
The paper follows a quantitative research method, which is premised on the numerical  
data and statistical analysis. The ESG ratings are contrasted with such financial  
performance indicators as profitability and firm value. The relationships can be  
measured correctly and it is possible to make credible conclusions with the strategy.  
3.4 Research Design  
This is a descriptive and explanatory research design. The descriptive perspective will  
provide the broad idea of the ESG practices and financial performance in the highly  
polluting sectors but the explanatory perspective will be concerned with the correlation  
of them. The combination allows this study to present and interpret data.  
3.5 Data Collection Methods  
The secondary data sources used in the research include the ESG rating databases,  
financial reports of the companies, and publicly available data sets. The data cuts across  
different firms that are in operation within such industry as energy, mining and  
manufacturing thus is applicable to the aims of the research. Secondary data makes the  
analysis more credible and provides a chance to carry out the analysis on a larger scale.  
3.6 Sampling Technique  
Purposive sampling technique is employed to recognize the firms eligible to be the  
polluting industries in large numbers. This will render this sample a direct reflection of  
what the study is concerned with and can be able to analyze the findings of ESG and  
financial performance in high impact sectors.  
3.7 Data Analysis Techniques  
The statistical methods used to perform the analysis of the statistics are the descriptive  
statistics, the correlation analysis and the regression analysis. The ESG and financial  
analysis is summarised using the descriptive statistics, the strength of the correlations  
between the variables are established using the correlation analysis, and the efficiency of  
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ESG rating on the change in the financial performance is measured using the regression  
analysis.  
3.8 Ethical Considerations  
The paper has also been ethical in terms of research as it employs information that is  
publicly available and is accurate in its analysis and reporting. No personal or  
confidential information is dealt with and the information is only utilized in academic  
use.  
Overall, it is possible to say that this methodological frame offers a strict and  
thoroughly organized analysis of the relationship between ESG rating and the financial  
success of the most polluting industries.  
4. Results and Analysis  
4.1 ESG Rating Distribution among Firms  
Table 4.1: ESG Rating Levels  
Category  
Share (%)  
High ESG  
38  
Medium ESG 42  
Low ESG  
20  
The distribution demonstrates that the highest percentage of firms fall on the medium  
category of ESG which implies that a high number of organizations are currently in the  
process of embracing sustainability practices and are yet to attain high levels of ESG  
integration. The slightly lower portion is those high ESG performers which means that  
only a small percentage of firms have completely adopted sustainability in their strategic  
processes (Dasilas & Karanović, 2025).  
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The availability of the significant portion of low ESG category indicates that many  
companies continue to work with little environmental and social concerns. Such  
disparity indicates the transitionary nature of ESG implementation in the highly  
polluting sectors, in which the improvement can be observed but not universally across  
the companies (Nguyen et al., 2021).  
4.2 Profitability Comparison Based on ESG Ratings  
Table 4.2: Profitability by ESG Level  
ESG Level  
Profit Margin (%)  
High ESG Firms  
Medium ESG Firms  
Low ESG Firms  
18  
14  
10  
The profitability comparison shows that the financial performance is gradually growing  
with the improvement of ESG ratings. The high ESG scores indicate that firms show  
stronger profit margins, which could be explained by the increased operational  
efficiency, trust of the stakeholders, and improved brand image. Medium ESG firms are  
characterized by moderate profitability which is a partial accrual of sustainability  
practices (Yin et al., 2023). In contrast, low ESG firms have the poorest financial  
performance, which can be explained by the fact that they have more exposure to  
environmental risks, regulatory fines, and loss of investor trust. This trend implies that  
ESG practice has a positive impact on profitability, but the extent to which it has an  
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effect is different based on the extent of its implementation (Makridou, Doumpos &  
Lemonakis, 2024).  
4.3 Market Value Growth and ESG Performance  
Table 4.3: ESG and Market Growth  
ESG Category Growth Rate (%)  
High ESG  
22  
Medium ESG 16  
Low ESG  
11  
The outcomes show that ESG performance is significantly related to market value  
increase. Companies enjoying a better ESG score enjoy more growth in market value  
implying that investors are more likely to invest in a firm that practices sustainability  
and has a responsible approach. The advantage of medium ESG firms is moderate  
growth as they have semi-confidence of investors whereas low ESG firms are losing  
behind as they are seen to be risky and less sustainable.  
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This pattern underlines the increased role of the ESG aspects in investment choices,  
especially in sectors that have an immense effect on the environment (Zhang & Jung,  
2023).  
4.4 ESG Cost Burden versus Financial Returns  
Table 4.4: Cost and Return Comparison  
Indicator  
Ratio (%)  
ESG Cost Increase 26  
Revenue Increase  
19  
When the ESG-related costs and revenue increase are compared, it is observed that the  
increase in costs is greater than the increase in immediate financial returns in firms. This  
means that sustainability projects can be very expensive to start with in the region of  
cleaner technologies, systems of compliance, and social programs. These expenses might  
decrease the profitability in the short run but are required in the long run to become  
long-term sustainable and manage the risks (Naeem, Cankaya & Bildik, 2022). The  
difference in cost and revenue is also the reason why not all firms are keen to implement  
ESG practices vigorously, even though it may have long-term benefits.  
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4.5 Risk Reduction across ESG Categories  
Table 4.5: ESG and Risk Reduction  
ESG Level  
Risk Reduction (%)  
High ESG Firms  
30  
Medium ESG Firms 22  
Low ESG Firms  
14  
The results prove that the stronger the performance of ESG, the more the decrease of  
business risks. Companies that have good ESG practices will be in a better position to  
handle environmental costs, regulations as well as operations that are stable. Moderate  
reduction in risk is observed in medium ESG firms meaning that their sustainability  
initiatives are partially effective (Song, 2023). Low ESG companies do not have many  
opportunities to mitigate risks and, thus, these companies are more exposed to the  
dangers of being subjected to regulatory fines, environmental accidents, and image  
losses. This trend shows the role of the ESG as a risk management instrument in the  
highly polluting sectors.  
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4.6 Short-Term and Long-Term Financial Impact  
Table 4.6: Time-Based Financial Impact  
Time Frame  
Impact (%)  
Short-Term Impact 12  
Long-Term Impact 24  
The comparison of the short and long-term financial impacts suggests that, the benefits  
of ESG practices occur more in the long-term. The short-run financial returns are also  
quite minimal as the implementation and adjustment cost is also high. However, the  
long-run effect is more critical since the companies will have an improved efficiency,  
reduced risk, and productivity in the market. This means that ESG should be viewed as  
a long term investment and not a direct profit making venture especially in a highly  
environmental industry (Chen, Song & Gao, 2023).  
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Overall, the results highlight the systematic trend according to which the higher the level  
of ESG performance, the higher financial performance, the higher market growth and  
reduced risks (Li, Tang & Li, 2024). However, the findings also indicate that the  
benefits of ESG are more pronounced in the long-term, and short-term financial  
constraints with the highly polluting businesses is a challenge to corporations.  
5. Discussion  
The findings of this study are largely coherent and complementary to the literature on  
the relationship between ESG performance and financial performance particularly when  
it comes to highly polluting industries. The results show that the maximization of  
profitability and growth of the market values of the companies with the high score in  
their ESG scale are consistent with the points made by Clarkson et al. who believe that  
the high level of environmental disclosures elevates the level of investor trust and  
valuation of the companies. The current findings support this view since they show high  
ESG companies not only gain the trust of the market but also translate the trust into  
some measurable monetary gains. This paper however shows that there is yet another  
channel by which ESG influences financial performance; transparency has been shown  
to play a vital role, in this instance, by Clarkson et al., however, operational efficiency  
and risk management were also identified to have a significant correlation with the  
increase in performance.  
Similarly, the ESG performance versus the profitability in this research is positive and in  
agreement with the argument of Pava and Krausz who opine that a socially responsible  
firm might perform even as well as a less socially responsible firm or even better. The  
above statement is confirmed by the current evidence which provides empirical data that  
high ESG companies, in comparison to low ESG companies, earn significantly higher  
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profit margins. However, the specified study introduces some complexity into the fact  
that mentioned advantages of profitability are not felt immediately, as they typically  
come along with the added costs of their implementation at the very beginning, which is  
another point that prior research has not examined to a certain degree.  
The obtained outcomes are also reflected in the theoretical perspective of Shrivastava  
who interprets the problem of environmental responsibility as a strategic investment  
rather than a regulatory expense. This point of argument is supported by the difference  
observed between increase in cost related to ESG and the increase in revenues as  
businesses use more finances in the short run but reap the financial benefits in the long-  
run. This study renders the recommendation of Shrivastava more concrete by  
demonstrating empirically that the long-term financial impact is much more significant  
than short-term benefits, hence the strategic need of the sustainability integration in the  
high-impact industries.  
In comparison to ESG disclosures, the results are consistent with those obtained by  
Christensen who notes that quality and credibility of ESG reporting affects a financial  
performance. In the present study, the disclosure quality has not been directly measured,  
but the high ESG firms are performing more well, which means that viable and  
standardized ESG practices can probably result in improved financial performance. In  
the meantime, the standard deviation of firms implies that not all ESG initiatives would  
positively impact an organization equally, which, in its turn, is a concession made to the  
argument of Christensen that superficial or formal ESG initiatives would not have  
necessarily resulted in the firm becoming a financial success.  
The study findings on the increase in market value and investor choice are very parallel  
with the study conducted by Cheng et al. that find that firms with higher ESG rating  
face fewer capital constraints and are more prone to receive additional investment. The  
higher growth rates of high ESG firms presented in this paper reveal that the investors  
of the heavily polluting industries attach rising importance on the sustainability practice.  
This demonstrates the fact that ESG is perceived to be a pointer of reduced risk and  
sustainability in the long-run that enhances the attractiveness of such enterprises in the  
financial markets. However, the present study also indicates that it is stronger in the  
industry that is more environmental sensitive, with the sense of ESG factors playing a  
bigger role in the investment process.  
Cohen et al. also justify the role of ESG in the reduction of risks that were identified in  
the study by mentioning that an effective way to enhance the sustainability practices is  
through a well-organized governance. The larger mitigation of risk that is observed in  
the high ESG firm suggests that the aspect of governance as part of ESG, has a  
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significant role to play in the management of the environmental and operational risk.  
Their findings are subsequently extended in this study which discloses that risk  
containment is not only a governance outcome, but also a coordinated reaction to both  
environmental and social procedures, and in the majority of sectors which are vulnerable  
to a high degree of environmental liabilities.  
To a greater extent, the results can also be viewed as reflective of the whole CSR  
perspective by Aguinis and Glavas who suggest that the corporate social responsibility  
promotes the relations of the stakeholders and the overall performance of the firm. The  
superior profitability and stock values of high ESG businesses in this paper specifically  
in the industries with the highest perception of people and regulation confirm this  
argument. However, the available data also indicates that stakeholder benefits are not  
distributed equally since medium and low ESG companies are not able to enjoy the  
same financial accolades which means that the strength and homogeneity of ESG  
application is a decisive factor.  
6.Conclusion  
The current study sought to examine this relationship between ESG performance and  
financial performance in those industries characterized by huge production of  
pollutants, namely profitability, market value, cost implication as well as risk reduction.  
The findings provide a fair indication that the ESG performance may turn out to be an  
effective predictor of financially successful performance with a complicated and time-  
specific effect. It has been observed that companies with good ESG scores are more  
profitable and have higher market value growth besides their lower exposure to risk, as  
compared to other companies whose ESG activities are low. That confirms the concept  
that ESG is not just a regulatory or ethical necessity, but a long-term value creation  
source.  
However, it is also found in the study that a great trade-off exists between financial  
performance in the short term and long-term sustainability benefits. The investments  
related to ESG are connected with the high initial cost, which tends to exceed the  
immediate revenue returns and, in the meantime, reduces the profit margins. That is why  
even nowadays, there are companies which are not ready to adopt ESG fully despite its  
benefits in the long term. The findings reveal that ESG should be used long-term  
strategic perspective, without being used as a financial indicator, especially in the area of  
exceedingly high environmental performance and governmental impact.  
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In addition, the results suggest that the relationship between the ESG and the financial  
performance is not always present in every firm. The variation in ESG outcomes  
demonstrates that the contextual factors such as size of a firm, standard of governance  
and market set up dictate the effectiveness or ineffectiveness of sustainability practices.  
With improved system of governance and better resource base, such companies have  
greater opportunities of successfully incorporating ESG in their operations and  
achieving positive financial performance. This goes to affirm the idea that the ESG  
performance can also be linked to not only adoption, but also the quality and  
consistency of the implementation.  
In most cases, the research is an addition to the existing body of literature by providing  
information regarding the industry in question which is heavily polluting but has been  
under-represented in the past. It confirms that ESG practices enhance the financial  
performance in different channels including efficiencies and confidence of the investors  
and reduce operational risks. At the same time, it also puts emphasis on the importance  
of cost-to-weigh-off balance between pricing strategy and long-term strategic benefits  
since it offers a healthier image of ESG in shaping the corporate performance.  
7.Recommendations  
Based on the findings of this study, one can offer several practical and policy-related  
recommendations to ensure the practices of ESG become efficient in the most polluting  
industries.  
First, firms should capture a long-term strategic practice of ESG investment as  
compared to focusing on short-term financial success. Since the positive impact of ESG  
is stronger as time goes, businesses have to embrace sustainability in their business  
strategies and decision making. This involves aligning the objectives of ESG with the  
overall corporate objectives in such a way that sustainability would not be perceived as a  
one time or a compliance exercise.  
Second, the organizations are to improve quality and reporting of ESGs. Open, firm and  
agreeable reporting could enforce investor confidence and reduce information  
asymmetry that ultimately results in enhanced financial performance. The symbolic  
reporting is not intended to be remained by the companies, but the actual and verifiable  
results of the ESG, which may contribute to the reputation preservation and subsequent  
long-term investment should be listened to.  
Third, one of the priorities of the companies, which operate in highly polluted  
industries, should be cost-effective ESG implementation. Even though sustainability  
programs can be associated with massive investments, the companies can minimize costs  
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with the help of new technologies and process improvement and maximize profits. To  
explain this, we can observe that through investments in energy saving systems and waste  
reduction measures and cleaner production mechanisms, it can be seen that it is possible  
to minimize the cost of operation in the long run besides improving the performance of  
the environment.  
Fourth, in order to conduct ESG successfully a company must enhance corporate  
governance systems. Business firms must ensure that the governance procedures are  
oriented to attain sustainability like establishment of special ESG committees,  
accountability frameworks, and performance management. Good governance may help  
to make decisions in the management like the long-term sustainability goals and  
improve the overall performance of the organization.  
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