An Analysis of the Relationship Between ESG Activities and the Financial Performance of Japanese Companies Toward Sustainable Development

Demands for companies to comply with environmental, social, and governance (ESG) requirements are growing, and companies are also expected to play a role in promoting sustainable development. For companies to achieve sustainable growth while addressing ESG, it must be understood whether ESG activities promote improved corporate financial performance. We conducted a five-year panel data analysis of 635 Japanese firms from FY 2019 to FY 2023, using the PBR, PER, and ROE financial indicators as the dependent variables and CSR ratings in the human resource utilization (HR), environment (E), governance (G), and social (S) categories as the independent variables. The results revealed that, depending on the combination of ESG field and financial indicators, companies with advanced ESG initiatives had greater financial performance, with some cases showing a nonlinear relationship; differences in the results between manufacturing and nonmanufacturing industries were also observed. For companies to effectively advance ESG activities, it is important to clarify the objectives and results for each ESG category. For policymakers to consider measures to encourage companies’ ESG activities, it is also important to design finely tuned regulations and incentives according to the ESG category and industry characteristics.