Environmental, Social, and Governance (ESG) Considerations in Corporate Finance: A Narrative Synthesis of Literature

Abstract

This paper aims to synthesise the current literature on how Environmental, Social, and Governance (ESG) factors influence corporate finance by focusing on core areas such as capital structure, investment, risk management, cost of capital, and firm valuations. The study adopted a narrative literature synthesis by systematically reviewing 24 peer-reviewed empirical and theoretical articles published between 2011 and 2024. The selection process utilised targeted search terms in academic databases with inclusion criteria emphasising studies that examine ESG in relation to corporate finance. The analysis is organised thematically and supported by summary tables and cross-comparative discussion. Findings indicate that ESG practices generally enhance financial performance and stakeholder confidence particularly in regulatory-driven and emerging markets. However, the impact varies according to company size, industry, and governance. Methodological diversity and inconsistent ESG indicators remain significant barriers to consensus, with governance and stakeholder engagement emerging as the most influential drivers. This study advances literature by providing an integrated, cross-thematic synthesis of ESG’s financial impact, highlighting theoretical gaps in stakeholder, agency, and legitimacy theories. The originality lies in its multi-region focus and identification of methodological and conceptual contradictions, thereby setting the pace for more dynamic and interdisciplinary research in ESG-finance.