The Impact of ESG Factors on Financial Performance: A Comparative Cement Industry Analysis

Abstract

Purpose This study aims to examine the impact of Environmental, Social, and Governance (ESG) integration on the financial performance of the top five cement firms in Pakistan—Lucky Cement, Maple Leaf Cement, Fauji Cement, Kohat Cement, and DG Cement. The objective is to assess the influence of ESG on key financial indicators, including liquidity, profitability, efficiency, solvency, and market performance. Design/methodology/approach A quantitative comparative analysis of secondary financial data was conducted, spanning the period from 2018 to 2024. The study analyzes pre- and post-ESG adoption financial ratios to evaluate how sustainability initiatives influence corporate financial outcomes. Data were extracted from annual reports, sustainability disclosures, and investor statements. Key ratios such as ROE, ROA, current ratio, and asset turnover were examined to track performance shifts. Findings The findings reveal that while ESG implementation initially led to financial constraints— including reduced liquidity and profitability due to capital expenditures—it resulted in long-term gains. Notably, companies such as Fauji Cement and Lucky Cement experienced improved ROE (near 50%) and enhanced operational efficiency post-ESG. Investor confidence was also restored, as indicated by rising dividend yields and market valuation. Efficiency ratios improved due to ESG-aligned operational upgrades and digitalization efforts. Practical implications The study underscores the importance of strategic ESG integration for cement firms operating in emerging markets. It advises firms to balance capital allocation between sustainability initiatives and shareholder returns. Moreover, aligning ESG strategies with governance reforms and risk management frameworks can drive long-term financial stability and competitiveness.