International Journal of Financial Innovations & Risk Management (IJFIRM)
2025 – Volume 1 – Issue 1 – Pages 1–30
Authors:
Imran Hussain Shah 1, Ayesha Malik 2,
- University of Lahore, Lahore, Pakistan
2. University of Lahore, Lahore, Pakistan
Abstract
This study investigates whether ESG disclosure and ESG risk exposure are correlated with profitability among large listed firms in China, India, and Pakistan from 2014 to 2024. We estimate firm- and year-fixed-effects panel models with clustered errors and conduct robustness checks, including pillar disaggregation and alternative specifications. The aggregate ESG score (t–1) is negative for ROA in the short run, indicating near-term trade-offs as firms incur reporting and compliance costs. Disaggregating ESG reveals an apparent asymmetry: the Environmental pillar is negative and significant, the social pillar is positive and significant, and Governance is statistically indistinguishable from zero after accounting for unobserved heterogeneity. ESG risk exposure—a country-year–standardized indicator of exposure to E, S, and G incidents—shows a negative association with ROA. At the same time, leverage increases exposure, and prior profitability lowers it. Consistency checks (winsorization, alternative leverage, and banks excluded) support these patterns. Overall, the evidence suggests that transition and compliance costs dominate the environmental channel in the short term, with benefits more evident through social capital. Policy and managerial implications include strengthening standardized reporting and third-party assurance, as well as integrating ESG into operations to convert near-term costs into longer-term value. The results highlight a risk-mitigation pathway and underscore the importance of pillar-level analysis in emerging markets
Keywords: Risk assessment, disclosure, reporting, finance
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