Environmental, social, and governance (ESG) considerations have become increasingly salient in construction management. Despite their growing importance and impact, ESG implementation in the construction industry, particularly its financial implications, remains insufficiently understood. To address this gap, this study draws on instrumental stakeholder theory to investigate the financial implications of ESG performance for construction firms.
Using multiple regression analysis on a sample of Chinese listed construction firms from 2011 to 2023, this study examines the impact of ESG performance on construction firms' downside risk and upside potential and the moderating role of media coverage.
The results show that ESG performance significantly reduces downside risk for construction firms, with no significant association with upside potential. Furthermore, media coverage attenuates the negative relationship between ESG performance and downside risk.
The findings offer practical guidance for construction firms to strengthen transparent ESG disclosure, develop project-level ESG capabilities, and place greater emphasis on the social and governance pillars. For policymakers, this study underscores the importance of reducing compliance burdens and implementation costs, providing fiscal incentives for green projects, promoting ESG-linked financial instruments, collaborating with industry associations to deliver ESG-focused training, and recognizing exemplary ESG practices. For investors, the results highlight the value of incorporating ESG metrics into risk assessment processes and of assessing the extent to which ESG practices are embedded in construction firms' core project operations.
This study extends instrumental stakeholder theory to the construction context and contributes to the growing literature on the financial consequences of ESG performance. By uncovering the asymmetric effect of ESG performance on downside risk and upside potential, this study provides novel insights into its risk-mitigating role.
