Beyond ESG Scores: A Contingency Framework for Value Creation

Yuexi Ding

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.ACCOUNTING

Faculty Research Mentor: Nejatbakhsh, Yousef  Aliasgari, Malihe

Abstract:

Environmental, Social, and Governance (ESG) information has become central to sustainable finance, corporate strategy, and regulatory disclosure. However, ESG evaluation remains dominated by composite scores that aggregate heterogeneous environmental, social, and governance dimensions into a single metric. While convenient, this practice obscures differences in financial materiality, strategic relevance, and operational mechanisms, limiting its usefulness for decision-making. As a result, empirical evidence on the ESG–financial performance relationship remains mixed, often attributed to measurement noise rather than underlying heterogeneity in value pathways.This study reframes ESG analysis from “whether ESG pays” to “when, how, and for whom ESG creates value.” We analyze U.S. Financials and Health Care firms from 2019 to 2023 using Bloomberg ESG Disclosure Scores and SASB materiality indicators, constructing a balanced panel of 609 firm-year observations. We disaggregate ESG into pillar-level measures (E, S, G) and examine their relationships with firm valuation and performance (Tobin’s Q, ROA, ROE) through portfolio sorts and fixed-effects panel models. To capture strategic and operational heterogeneity, we integrate a BCG-based strategic positioning framework with value-chain-based clustering to identify distinct ESG operational archetypes.We find that ESG value creation is conditional and configuration-based, emerging primarily when high materiality contexts align with strong organizational integration. These results suggest that ESG functions less as a universal score and more as a diagnostic decision space. To translate these insights into practice, we develop a diagnostic dashboard that consolidates strategic positioning, operational archetypes, and financial outcomes into a unified interface. The dashboard supports ESG-aligned screening, engagement targeting, and strategy assessment, moving beyond descriptive ratings toward decision-relevant analysis.