ESG Performance, Financial Outcomes, and the New Imperatives for Procurement Professionals

Over the past several years, the evidence linking strong environmental, social, and governance (ESG) performance with superior financial outcomes has grown strikingly consistent. Meta-analyses and empirical studies published between 2023 and 2025 reinforce earlier findings, showing not only that ESG initiatives matter for corporate sustainability, but that they are economically material. The momentum of research across regions, industries, and methodologies demonstrates that firms investing in ESG capabilities achieve stronger profitability, face lower capital costs, and benefit from more favorable market valuations. These advantages, in turn, are redefining expectations for procurement teams, who increasingly sit at the front line of ESG realisation through sourcing, supplier management, and risk mitigation.

This article synthesises the prevailing evidence on ESG’s financial impacts and translates those insights into strategic implications for procurement professionals. As regulations tighten, investor scrutiny intensifies, and AI-powered analytics mature, procurement’s role is shifting from cost containment to value creation. The following sections explore this evolution.

Sustainability = Sustainable Financial Performance

ESG and Financial Performance: Evidence from 2023–2025

Recent research across global markets paints a compelling and data-rich picture of the ESG–financial performance connection. A wide-ranging set of meta-analyses shows that approximately 58% of reviewed studies identify a positive correlation between ESG performance and financial returns, while only 8% report negative relationships. Although results vary across regions, sectors, and specific ESG dimensions, the overarching trend is clear: proactive ESG investments reduce operational risks, strengthen financial resilience, and support long-term value creation.

A particularly important insight emerging in this period is the significance of materiality. ESG initiatives yield stronger financial impacts where environmental or social risks are high, such as in heavily regulated or high-pollution industries, emerging markets with resource constraints, and firms operating under tighter financing conditions.

Accounting and Profitability Impacts

Contemporary empirical analyses highlight a consistent association between ESG improvements and traditional accounting metrics. Studies from China, Europe, and Turkey converge on the conclusion that reductions in emissions and improvements in ESG disclosure quality correlate robustly with increases in return on assets (ROA), return on equity (ROE), and overall profitability.

A comprehensive 2025 study of Shanghai and Shenzhen-listed firms (spanning 2009–2021) found that stronger ESG performance significantly enhanced financial outcomes. These effects were particularly pronounced in eastern Chinese regions, state-owned enterprises, and high-pollution industries—contexts in which ESG performance is closely watched by regulators and stakeholders. The study’s results also survived rigorous endogeneity tests, underscoring the validity of the relationship.

Another empirical analysis reported ROA correlations between 0.028 and 0.035 for firms with higher ESG ratings, with even stronger effects observed in non-state-owned enterprises. Robustness checks using ROE confirmed these findings, revealing that ESG initiatives support not only operational efficiencies but also capital allocation discipline.

Intangible Assets and Firm Valuation

Intangible value creation is becoming a central point of analysis in ESG research. Several studies during 2023–2025 linked ESG performance directly to elevated firm valuation through intangible channels such as brand equity, customer loyalty, investor trust, and innovation capabilities.

A 2023 study affirmed a strong correlation between ESG performance and Tobin’s Q, with the effect amplified in favorable business environments—typically those offering regulatory stability and market transparency. In the Nordic region, an instrumental-variable study of small-cap firms from 2018 to 2022 established a causal relationship between ESG scores and valuation gains, driven largely by improvements in intangible assets.

In the energy sector, research using Tobin’s Q showed that ESG disclosure strengthens market value beyond what is explained by asset replacement costs. For capital-intensive industries, transparent environmental and governance practices appear to serve as signals of long-term strategic viability.

Cost of Capital Effects

Perhaps one of the strongest and most consistent areas of evidence concerns cost of capital. Multiple studies confirm that higher ESG ratings lower the cost of equity, the cost of debt, and the overall weighted average cost of capital (WACC).

MSCI’s 2024 analysis, covering 4,319 issuers from 2015 to 2024, shows that firms in the top ESG quintile enjoy meaningfully lower financing costs through reduced beta and tighter credit spreads. A 2025 study predicted that this trend would extend even further, with negative associations between ESG dimensions and WACC across multiple industries.

Bond-market data also reinforces the pattern: proactive environmental management is linked to reductions in yield spreads by several basis points, reflecting investor confidence in lower long-term default risks. Meanwhile, KPMG’s 2025 consumer-sector analysis highlighted ESG’s growing influence on valuations, particularly as consumers reward companies with transparent sustainability commitments.

Market Reactions and Portfolio Performance

Event studies and portfolio analyses published through 2025 further confirm ESG’s market relevance. A 2025 study in Frontiers demonstrated that financing constraints positively moderate the link between ESG performance and financial outcomes for constrained firms. However, a strong innovation focus appeared to moderate the relationship negatively, suggesting trade-offs between R&D-heavy strategies and ESG investment capacity.

In Turkey, firm-level analysis identified environmental and governance performance as key drivers of ROE and Tobin’s Q. Broader portfolio research continues to show that resilient, high-ESG firms experience lower volatility and capture higher returns in dynamic markets, reinforcing the idea that ESG acts as a form of strategic insurance. 

Social Dimension: Integrating the Social Aspect in ESG and Procurement

While environmental and governance factors dominate many ESG discussions, the social pillar represents an equally vital area of impact and value creation. Procurement teams are increasingly expected to advance social goals through supplier diversity, support for social enterprises, upholding human rights, and fostering community development.

Supplier Diversity and Innovation

Diverse supplier networks, including women-owned, minority-owned, and social enterprises, are linked with innovation and improved access to emerging markets. Research shows that companies with strong supplier diversity initiatives often experience enhanced stakeholder trust and reduced operational risks, contributing to better financial performance and higher valuations.

Social Enterprise Partnerships

Sourcing from social enterprises extends procurement’s reach into local communities, generating measurable social impact without sacrificing commercial quality or cost effectiveness. Such collaborations help create jobs, promote skills development, and support vulnerable populations, strengthening brand reputation and customer loyalty.

Human Rights Due Diligence

Robust human rights due diligence aligns with growing regulatory mandates and investor expectations. Procurement plays a vital role in screening suppliers against labor standards, fair wages, workplace safety, and anti-discrimination policies. Effective due diligence programs reduce legal and reputational risks, lower turnover, and stabilize supply chains.

Embedding Social Criteria in Procurement Processes

Integrating social metrics within sourcing and contract management, such as social audits and performance reporting, strengthens risk management and delivers tangible financial benefits. Social procurement contributes to improved workforce retention and operational efficiencies, while enhancing intangible assets and reducing the cost of capital.

Implications for Procurement Professionals

Suppliers remain significant sources of ESG risk, including environmental emissions, labor conditions, and governance practices. Procurement teams serve as critical gatekeepers of ESG performance across the value chain. The expanding evidence base confirms that procurement decisions drive measurable financial impacts on cost structure, risk exposure, and valuation potential.

The financial benefits of ESG, including improved profitability, lower capital costs, and higher valuations, underscore the imperative for procurement to embed comprehensive ESG criteria in sourcing, supplier selection, and contract management. Proactive ESG sourcing reduces financing costs, supports revenue growth, and mitigates supply chain disruptions.

Key procurement actions include conducting thorough ESG due diligence with an emphasis on social factors, favouring suppliers demonstrating emissions reductions and socially responsible practices, embedding sustainability and social reporting requirements aligned with global standards, and continuously monitoring supplier ESG performance to prevent avoidable risks.

Long-term, procurement professionals are evolving from cost-cutters to value architects, driving sustainability agendas supporting ESG and SDG goals. Tracking both environmental and social metrics enhances operational efficiency and firm valuation, positioning procurement as a leader in sustainability within increasingly regulated and competitive markets.

Transformative Procurement Change® - December 2025 (Last Edition)