The Impact of ESG Practices on ROA, Financial Leverage, and ROE. A Comparative Analysis of the United States, the European Union, China, and Japan
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Published
29-07-2026
Gracia Rubio Martín
Francisco José González Sánchez
Raquel Pérez Estébanez
https://orcid.org/0000-0002-2911-2191
Francisco José González Sánchez
Raquel Pérez Estébanez
Abstract
The article provides a comprehensive understanding of how Environmental, Social, and Governance performance increase the return on assets and the companies’ financial leverage, ultimately enhancing the return on equity, in the United States, the European Union, China and Japan. To achieve this understanding, the study also analyses the core components of the financial leverage: the leverage ratio and the cost of debt. The study analyses 13,321 observations of public companies from 2017 to 2021. To analyse it we use a multilevel model (mix multilevel model in Stata), incorporating into the specified regression models the inherent hierarchical structure of data.
The findings indicate that ESG investments are positively perceived by stakeholders, enhancing financial performance in all regions, though with notable differences. The analysis examines these distinct regions separately but also introduces the geographic zone as a moderating variable to evaluate comparatively how different regional contexts affects environmental performance on corporate financial results. An important conclusion is that the market rewards ESG is inverse proportion to the region’s regulatory maturity. Internationally, however, this regulatory framework acts as a country-level or baseline standard. While the US experiences the strongest global impact of ESG on these financial variables, followed by the EU, the effects are more moderate for companies in China and Japan.
Understanding ESG’s impact on the returns on assets and equity is crucial for investors, corporate leaders, and policymakers promoting sustainable growth. As global markets integrate sustainability, identifying ESG’s financial benefits strengthens the case for its adoption worldwide.
How to Cite
Rubio Martín, G., González Sánchez, F. J., & Pérez Estébanez, R. (2026). The Impact of ESG Practices on ROA, Financial Leverage, and ROE. A Comparative Analysis of the United States, the European Union, China, and Japan. Cuadernos De Gestión, 26(2), 77–92. https://doi.org/10.5295/cdg.252453fj
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Keywords
ESG, ROE, ROA, Financial Leverage
References
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Caragnano, A., Mariani, M., Pizzutilo, F., & Zito, M. (2020). Is it worth reducing GHG emissions? Exploring the effect on the cost of debt financing. Journal of Environmental Management, 270, 110860. https://doi.org/10.1016/j.jenvman.2020.110860
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Fandella, P., Sergi, B. S., & Sironi, E. (2023). Corporate social responsibility performance and the cost of capital in BRICS countries. The problem of selectivity using environmental, social and governance scores. Corporate Social Responsibility and Environmen-tal Management, 30(4), 1712-1722. https://doi.org/10.1002/csr.2447
Flammer, C. (2013). Corporate social responsibility and shareholder reaction: The environmental awareness of investors. Academy of Management journal, 56(3), 758-781. https://doi.org/10.5465/amj.2011.0744
Flórez-Parra, J. M., Rubio Martín, G., & Rapallo Serrano, C. (2020). Corporate social responsibility and crowdfunding: The experi-ence of the colectual platform in empowering economic and sustainable projects. Sustainability, 12(13), 5251. https://doi.org/10.3390/su12135251
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Fujii, H., Managi, S., & Matousek, R. (2020). ESG disclosures and financial performance: Empirical evidence from Japan. Sustaina-bility, 12(8), 3275. https://doi.org/10.3390/su12083275
Galema, R., Plantinga, A., & Scholtens, B. (2008). The stocks at stake: Return and risk in socially responsible investment. Journal of Banking & Finance, 32(12), 2646-2654. https://doi.org/10.1016/j.jbankfin.2008.06.002
Gao, L., & Wan, L. (2023). Does corporate environmental responsibility contribute to financial performance? A dual path analysis through operational efficiency and the cost of debt. Corporate Social Responsibility and Environmental Management, 30(1), 308-323. https://doi.org/10.1002/csr.2356
Giannarakis, G. (2014). Corporate governance and financial characteristic effects on the extent of corporate social responsibility disclosure. Social Responsibility Journal, 10(4), 569-590. https://doi.org/10.1108/srj-02-2013-0008
Gillan, S. L., Koch, A., & Starks, L. T. (2010). The evolution of shareholder activism in the United States. Journal of Applied Corpo-rate Finance, 16(1), 55-73. https://doi.org/10.1111/j.1745-6622.2007.00125.x
González Sánchez, F. J., Martín, G. R., López Sáez, P., & Martín, A. R. (2026). Corporate Environmental Responsibility, Environmen-tal Policy Stringency and Debt Cost in Europe. Corporate Social Responsibility and Environmental Management, 33(1), 1230-1248. https://doi.org/10.1002/csr.70220
Harada, K., & Yamamoto, T. (2021). ESG transparency and firm profitability in Japan. Journal of Business Ethics, 172(4), 811-829. https://doi.org/10.1007/s10551-020-04411-1
Harjoto, M. A., Laksmana, I., & Yang, Y. (2015). Board diversity and corporate social responsibility. Journal of Business Ethics, 129(4), 707-724. https://doi.org/10.1007/s10551-014-2343-0
Hoepner, A. G. F., Yu, P.-S., & Ferguson, J. (2019). Does Pension Funds’ Fiduciary Duty Prohibit the Integration of Environmental Responsibility Criteria in Investment Processes? Journal of Business Ethics, 155(1), 65-85. https://doi.org/10.2139/ssrn.1930189
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Melo, T. & Garrido-Morgado, A. (2012), Corporate reputation: a combination of social responsibility and industry, Corporate Social Responsibility and Environmental Management, 19(1), 11-31. https://doi.org/10.1002/csr.260
Pérez Estébanez, R.; Sevillano Martín, F.J. (2025). Business Sustainability and Its Effect on Performance Measures: A Comprehen-sive Analysis. Sustainability, 17, 297. https://doi.org/10.3390/su17010297
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Bloomberg. (2023). Green bonds reached new heights in 2023. Retrieved (20/02/2025) from https://www.bloomberg.com/professional/insights/trading/green-bonds-reached-new-heights-in-2023/
Brammer, S., Jackson, G., & Matten, D. (2012). Corporate social responsibility and institutional theory: New perspectives on private governance. Socio-economic review, 10(1), 3-28. https://doi.org/10.1093/ser/mwr030
Candio, P. (2024). The influence of ESG score on financial performance: Evidence from the European health care industry. Strategic Change, 33, 417-427. https://doi.org/10.1002/jsc.2594
Caragnano, A., Mariani, M., Pizzutilo, F., & Zito, M. (2020). Is it worth reducing GHG emissions? Exploring the effect on the cost of debt financing. Journal of Environmental Management, 270, 110860. https://doi.org/10.1016/j.jenvman.2020.110860
Chen, S., Song, Y., & Gao, P. (2023). Environmental, social, and governance (ESG) performance and financial outcomes: Analyzing the impact of ESG on financial performance. Journal of Environmental Management, 345, 118829. https://doi.org/10.1016/j.jenvman.2023.118829
Clark, G. L., Feiner, A., & Viehs, M. (2015). From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Out-performance. Oxford University Press. https://doi.org/10.2139/ssrn.2508281
DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organiza-tional fields. American Sociological Review, 48(2), 147-160. https://doi.org/10.2307/2095101
Eccles, R. G., Ioannou, G., & Serafeim, G. (2014). The impact of corporate sustainability on organizational processes and perfor-mance. Management Science, 60(11), 2835-2857. https://doi.org/10.1287/mnsc.2014.1984
Eliwa, Y., Aboud, A., & Saleh, A. (2021). ESG practices and the cost of debt: Evidence from EU countries. Critical Perspectives on Accounting, 79, 102097. https://doi.org/10.1016/j.cpa.2019.102097
European Commission (2019). The European Green Deal. COM (2019) 640 final. Retrieved (07/02/2026) from https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2019%3A640%3AFIN
European Commission (2022). EUR-Lex. Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as re-gards corporate sustainability reporting (Text with EEA relevance). Retrieved (20/02/2025) from https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464
European Commission (2023). Commission Delegated Directive (EU) 2023/2775 of 17 October (2023). Retrieved (28/05/2024) from https://eur-lex.europa.eu/eli/dir_del/2023/2775
European Commission (2023). EUR-Lex. Regulation (EU) 2023/2631 of the European Parliament and of the Council of 22 November 2023 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustaina-bility-linked bonds. Retrieved (20/02/2025) from https://eur-lex.europa.eu/eli/reg/2023/2631/oj/eng
European Parliament and Council of the European Union. (2013). Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC. Official Journal of the European Union, L 182, 19-76. Retrieved (23/02/2025) from http://data.europa.eu/eli/dir/2013/34/oj
European Union (2019). Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sus-tainability‐related disclosures in the financial services sector. Official Journal of the European Union, L 317/1. Retrieved (07/02/2026) from http://data.europa.eu/eli/reg/2019/2088/oj
EY Japan. (2023). What’s next for Japanese sustainability disclosure standards?. Retrieved (20/02/2025). Retrieved (20/02/2025) from https://www.ey.com/en_jp/insights/sustainability/whats-next-for-japanese-sustainability-disclosure-standards
Fandella, P., Sergi, B. S., & Sironi, E. (2023). Corporate social responsibility performance and the cost of capital in BRICS countries. The problem of selectivity using environmental, social and governance scores. Corporate Social Responsibility and Environmen-tal Management, 30(4), 1712-1722. https://doi.org/10.1002/csr.2447
Flammer, C. (2013). Corporate social responsibility and shareholder reaction: The environmental awareness of investors. Academy of Management journal, 56(3), 758-781. https://doi.org/10.5465/amj.2011.0744
Flórez-Parra, J. M., Rubio Martín, G., & Rapallo Serrano, C. (2020). Corporate social responsibility and crowdfunding: The experi-ence of the colectual platform in empowering economic and sustainable projects. Sustainability, 12(13), 5251. https://doi.org/10.3390/su12135251
Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: The state of the art. Cambridge University Press. https://doi.org/10.1017/cbo9780511815768
Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment, 5(4), 210-233. https://doi.org/10.1080/20430795.2015.1118917
Fujii, H., Managi, S., & Matousek, R. (2020). ESG disclosures and financial performance: Empirical evidence from Japan. Sustaina-bility, 12(8), 3275. https://doi.org/10.3390/su12083275
Galema, R., Plantinga, A., & Scholtens, B. (2008). The stocks at stake: Return and risk in socially responsible investment. Journal of Banking & Finance, 32(12), 2646-2654. https://doi.org/10.1016/j.jbankfin.2008.06.002
Gao, L., & Wan, L. (2023). Does corporate environmental responsibility contribute to financial performance? A dual path analysis through operational efficiency and the cost of debt. Corporate Social Responsibility and Environmental Management, 30(1), 308-323. https://doi.org/10.1002/csr.2356
Giannarakis, G. (2014). Corporate governance and financial characteristic effects on the extent of corporate social responsibility disclosure. Social Responsibility Journal, 10(4), 569-590. https://doi.org/10.1108/srj-02-2013-0008
Gillan, S. L., Koch, A., & Starks, L. T. (2010). The evolution of shareholder activism in the United States. Journal of Applied Corpo-rate Finance, 16(1), 55-73. https://doi.org/10.1111/j.1745-6622.2007.00125.x
González Sánchez, F. J., Martín, G. R., López Sáez, P., & Martín, A. R. (2026). Corporate Environmental Responsibility, Environmen-tal Policy Stringency and Debt Cost in Europe. Corporate Social Responsibility and Environmental Management, 33(1), 1230-1248. https://doi.org/10.1002/csr.70220
Harada, K., & Yamamoto, T. (2021). ESG transparency and firm profitability in Japan. Journal of Business Ethics, 172(4), 811-829. https://doi.org/10.1007/s10551-020-04411-1
Harjoto, M. A., Laksmana, I., & Yang, Y. (2015). Board diversity and corporate social responsibility. Journal of Business Ethics, 129(4), 707-724. https://doi.org/10.1007/s10551-014-2343-0
Hoepner, A. G. F., Yu, P.-S., & Ferguson, J. (2019). Does Pension Funds’ Fiduciary Duty Prohibit the Integration of Environmental Responsibility Criteria in Investment Processes? Journal of Business Ethics, 155(1), 65-85. https://doi.org/10.2139/ssrn.1930189
Humphrey, J. E., Lee, D. D., & Shen, Y. (2012). Does it cost to be sustainable? Journal of Corporate Finance, 18(3), 626-639. https://doi.org/10.1016/j.jcorpfin.2012.03.002
Krüger, P. (2015). Corporate goodness and shareholder wealth. Journal of Financial Economics, 115(2), 304-329. https://doi.org/10.1016/j.jfineco.2014.09.008
Lassala, C., ADelloiteetrei, A., & Sapena, J. (2017). Sustainability matters: A review of ESG issues in firm performance. Business Strategy and the Environment, 26(7), 972-989. https://doi.org/10.1002/bse.1961
Li, Y., Chen, R., & Xiang, E. (2022). Corporate social responsibility, green financial system guidelines, and cost of debt financing: Evidence from pollution‐intensive industries in China. Corporate Social Responsibility and Environmental Management, 29(3), 593-608. https://doi.org/10.1002/csr.2222
Liu, J. Y., Xia, Y., Fan, Y., Lin, S. M., & Wu, J. (2017). Assessment of a green credit policy aimed at energy-intensive industries in China based on a financial CGE model. Journal of Cleaner Production, 163, 293-302. https://doi.org/10.1016/j.jclepro.2015.10.111
McKinsey Sustainability (2021). Charting a path from the shuchu kiyaku to ESG for Japanese companies. Retrieved (20/02/2025) from https://www.mckinsey.com/capabilities/sustainability/our-insights/charting-a-path-from-the-shuchu-kiyaku-to-esg-for-japanese-companies?utm_source=chatgpt.com
Malone, L., Holland, E., Houston, C., & Thacher, S. (2023). ESG Battlegrounds: How the States Are Shaping the Regulatory Land-scape in the US. In Harvard Law School Forum for Corporate Governance. Retrieved (20/02/2025) from https://corpgov.law.harvard.edu/2023/03/11/esg-battlegrounds-how-the-states-are-shaping-the-regulatory-landscape-in-the-u-s/
Miyamoto, M., & Nohara, H. (2023). How Japanese firms address the issues of environment, society, and governance: a corporate governance perspective. Evolutionary and Institutional Economics Review, 20(1), 25-46. https://doi.org/10.1007/s40844-022-00247-3
Melo, T. & Garrido-Morgado, A. (2012), Corporate reputation: a combination of social responsibility and industry, Corporate Social Responsibility and Environmental Management, 19(1), 11-31. https://doi.org/10.1002/csr.260
Pérez Estébanez, R.; Sevillano Martín, F.J. (2025). Business Sustainability and Its Effect on Performance Measures: A Comprehen-sive Analysis. Sustainability, 17, 297. https://doi.org/10.3390/su17010297
Phan, H. T., Nguyen, T. M., & Tran, T. K. (2022). ESG performance and firm value: Evidence from global markets. Financial Re-search Letters, 47, 102520. https://doi.org/10.1016/j.frl.2022.102520
Singhania, M., Saini, N., Shri, C., & Bhatia, S. (2024). Cross-country comparative trend analysis in ESG regulatory framework across developed and developing nations. Management of Environmental Quality: An International Journal, 35(1), 61-100. https://doi.org/10.1108/meq-02-2023-0056
Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3), 571-610. https://doi.org/10.5465/amr.1995.9508080331
United Nations Environment Programme. (2025). China embarks on a journey of ESG disclosure: 2024 progress and focus for 2025. Retrieved (20/02/2025) from https://www.unepfi.org/industries/banking/china-embarks-on-a-journey-of-esg-disclosure/
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