IMPACT OF ESG CRITERIA ON INVESTMENT RETURNS: A STUDY ON HOW ENVIRONMENTAL, SOCIAL, AND GOVERNANCE FACTORS INFLUENCE INVESTMENT PERFORMANCE AND RISK IN THE CASE OF PAKISTAN STOCK EXCHANGE

Abstract

The study examines how investing using ESG criteria influences returns and risks when looking at the Pakistan Stock Exchange (PSX). Because ESG factors are becoming more important worldwide, many people in finance are now interested in determining if these factors help a company perform well in the long run. This research uses both statistical and qualitative techniques to see how ESG behaviors influence a business’s performance, share price swings, and choices by investors in Pakistan, as the country has dynamic governance standards and weak ESG monitoring. Running panel data regression on a group of listed companies from 2018 to 2023, this study reveals that better ESG scores go together with higher stock returns. Moreover, companies that do well on ESG criteria tend to show lower swings and improved levels of performance compared to risk. Research points out that governance and environmental issues play a major role in Pakistan’s development, given that strong and stable politics and laws are difficult for the country to achieve. The information is very important to those making investment decisions, those in business, and people setting policy. ESG factors allow institutional investors to determine the most suitable way to spread their investments and help companies have a higher market valuation and increase trust from stakeholders. The review finds that there is an urgent requirement for new guidelines that require every listed company to share common ESG data in the PSX. This research provides important information for this subject and offers helpful guidance for sustainable investing in Pakistan.