The Role of ESG Factors in Improving Firm Financial Performance

Abstract

The present research investigates the correlation between environmental, social, and governance (ESG) factors and financial performance, dissecting the impact of each element on a company's profitability. The study focuses on small and medium-sized enterprises (SMEs) situated in the SouthEast of Romania within the construction sector, spanning a five-year period (2016-2021). The empirical findings reveal a positive association between ESG practices and financial performance, pointing out that enhancing ESG initiatives could effectively improve profitability of SMEs.

Keywords

• financial statements
• esg
• return on equity
• construction sector