ESG Risk and Financial Performance in Apparel Supply Chains: Evidence from NYSE and NASDAQ Listed US Companies (2021–2024)

Abstract

This study investigates the relationship between Environmental, Social, and Governance (ESG) risk and the financial performance of apparel companies listed on the New York Stock Exchange and the NASDAQ. The apparel industry is highly vulnerable to sustainability-related risks in its supply chains, and existing evidence on the relationship between ESG and financial performance remains fragmented and inconsistent across industries and regions. Therefore, this study examines whether the relationship between ESG and financial performance has existed in one specific market, the apparel industry, after the COVID-19 pandemic. Using a panel of 30 US-listed apparel companies observed from 2021 to 2024 (120 firm-year observations), pooled Ordinary Least Squares regression with standard errors clustered by firm was used to test the relationship between Sustainalytics' ESG Risk Score and two measures of financial performance: Return on Assets (ROA) and Net Profit Margin (NPM). The results reveal a statistically significant negative relationship between the ESG Risk Score and ROA and with NPM, respectively, suggesting that companies with a lower ESG Risk Score (better ESG Risk Management) have better financial performance. This relationship strengthens when the analysis is limited to the years 2022–2024, excluding the atypical post-pandemic recovery year of 2021, and is significant in most robustness checks, including outlier and multicollinearity tests. The results provide context-specific evidence for a body of literature with mixed findings across industries and regions, and could be relevant to apparel company managers and investors assessing the financial relevance of ESG risk management.