Abstract: While most studies analyze the relationship between ESG and financial performance (FP) through a separate E, S and G spectrum, that approach fails to capture the risks behind a company’s exposure to material ESG issues and its management. This study proposes a novel approach, based on ESG Risk and its two dimensions: Exposure and Management. To analyze their influence on financial performance, a combined cluster and panel regression analysis is employed on data for more than 2000 firms worldwide, between 2018 - 2022. Results show that companies tend to be grouped in ESG-FP performers and laggards. However, the GMM models employed at sample and cluster leve, respectively, reveal an inconclusive relationship between the financial and non-financial variables. Future research should explore alternative methodologies, data sources and longer time horizons to better understand the evolving dynamics between ESG risk dimensions and financial performance.

Keywords: ESG; financial performance; cluster analysis; panel regression analysis; risk mitigation

JEL codes: C33, C38, K32, Q56

DOI: ...