Assessment of Quantitative Environmental, Social, and Governance Indicators and Their Relationships with Corporate Financial Performance in Construction Companies

This study investigates the relationship among environmental, social, and governance (ESG) performance and corporate financial performance (CFP) in the construction industry. ESG represents a company's nonfinancial performance, whereas CFP reflects its financial outcomes. Given growing global attention toward climate change and corporate social responsibility, the adoption of ESG practices has become an essential component of corporate management. However, the construction industry has been significantly slower in adopting ESG compared to other industry sectors due to limited empirical evidence on the ESG-CFP relationship and a lack of implementation guidelines tailored to small- and medium-sized enterprises, which constitute the majority of the industry and often face challenges in securing resources for ESG initiatives. This research gap was addressed by collecting quantitative ESG indicators from publicly available ESG reports of nine general contractor firms in South Korea during a 12-year period. CFP was measured using financial ratios categorized into four categories: growth, profitability, liquidity, and efficiency. Panel regression analysis was conducted to examine the temporal effects of the ESG indicators on CFP. The results indicate that ESG indicators exert varying effects across different CFP dimensions depending on the nature of financial performance. Specifically, environmental indicators tend to enhance financial performance when aligned with socially desirable practices, whereas governance indicators show no consistent effect. A time-lag effect is also observed, suggesting that ESG initiatives require time to translate into financial returns. This study contributes to promoting ESG adoption in the construction industry by providing financial justification for ESG investments and identifying ESG management indicators commonly used by construction firms.