Environmental Sustainability Pays Off Financially Mostly for Firms That Know How to Work With the Media

Environmental, social, and governance initiatives—better known as ESG efforts—are often promoted as proof that companies can do good for society while still doing well financially. For years, business leaders, investors, and researchers have debated whether this promise actually holds true. A new academic study takes a closer look at this question and reaches a nuanced conclusion: environmental sustainability can improve financial performance, but the payoff largely depends on how visible a firm is in the media.

The research, conducted by Saurabh Mishra of George Mason University and Shekhar Misra of the University of Galway, digs into the role the media plays in turning ESG activity into financial results. Their findings suggest that sustainability alone is not enough. Instead, media sentiment acts as a crucial bridge between ESG performance and shareholder wealth.

Understanding the Core Question Behind ESG and Profitability

The basic idea behind ESG investing is simple. Companies that act responsibly toward the environment, society, and their stakeholders should be rewarded with stronger reputations, lower risks, and ultimately better financial outcomes. Yet, past research has delivered mixed results. Some studies find small positive effects, others find no effect at all, and some even point to negative outcomes.

This new study attempts to explain why those results vary so widely. Instead of asking whether ESG works in general, the researchers focus on how ESG works, and more specifically, who helps communicate ESG efforts to the public. That “who,” as it turns out, is the media.

The Data Behind the Study

To explore this relationship in detail, the researchers analyzed a large and diverse dataset covering 452 publicly traded firms over a ten-year period from 2009 to 2018. The data combined three major components:

ESG performance data, sourced from the Sustainalytics database
Media sentiment data, drawn from the RavenPack news analytics platform
Financial data, including firm valuation measures and advertising spending

This comprehensive dataset allowed the researchers to map out a three-step process: ESG performance influences media sentiment, media sentiment influences financial outcomes, and advertising intensity affects how strong that influence becomes.

Why the “E” in ESG Stands Apart

One of the most striking findings of the study is that not all ESG components matter equally. Among environmental, social, and governance factors, only environmental performance showed a direct positive effect on financial outcomes, and even that effect was relatively modest.

The researchers examined three specific financial indicators:

Idiosyncratic risk, which reflects firm-specific volatility
Abnormal stock returns, which measure performance beyond market expectations
Tobin’s Q, a ratio comparing market value to replacement cost

Out of these three, only idiosyncratic risk improved directly as environmental performance improved. In other words, companies with stronger environmental records tended to appear less risky to investors. Social and governance efforts, on their own, did not show similar benefits and sometimes even had negative associations with financial performance.

This does not mean social responsibility or strong governance are unimportant. Rather, the study suggests that their financial benefits may show up in areas not captured by traditional market metrics, such as employee productivity or internal trust.

Media Sentiment as the Missing Link

Where the study becomes especially interesting is in its analysis of media sentiment. Environmental initiatives were far more likely than social or governance initiatives to generate positive media coverage. That favorable coverage, in turn, was associated with better financial outcomes for firms.

Simply put, environmental actions are more visible, more newsworthy, and easier for journalists to frame as positive stories. Reducing emissions, investing in renewable energy, or improving sustainability metrics offers clear narratives that resonate with the public. Social and governance initiatives, by contrast, often take place internally and are harder to translate into compelling headlines.

As a result, companies focusing on environmental sustainability benefit from a media-driven reputation boost that directly supports financial performance.

The Role of Advertising in Amplifying ESG Benefits

Another critical insight from the study is that media benefits are not evenly distributed across firms. Companies that spend more on advertising tend to see a stronger positive impact from their environmental initiatives.

Importantly, this advertising does not have to promote ESG directly. General brand advertising appears to increase a firm’s overall visibility, making journalists more likely to notice and report on its sustainability efforts. The researchers did not analyze individual media stories or advertising placements, so they emphasize that this is not evidence of unethical influence or paid favoritism.

Instead, the explanation is more structural. Firms with large advertising budgets are simply more prominent in the public eye. When they take environmental action, those actions are more likely to be noticed, discussed, and framed positively by the media.

Why ESG Results Vary So Widely Across Firms

These findings help clarify why earlier studies on ESG profitability often produced conflicting results. On average, ESG may appear to have only weak financial effects. But when media sentiment and firm visibility are taken into account, the picture becomes far more complex.

Some companies see substantial financial upside from ESG investments, while others see little to none. The difference often lies in how effectively those investments are communicated and amplified through external channels.

In this sense, ESG works best not as a standalone strategy, but as part of a broader corporate approach that includes communication, branding, and long-term visibility.

Advertising as a Long-Term Strategic Asset

The study also connects ESG outcomes to the concept of advertising stock, a well-known idea in marketing research. Advertising builds cumulative value over time, but that value declines if spending stops. Firms that consistently invest in advertising maintain higher baseline visibility, which allows them to extract more benefit from other initiatives, including environmental sustainability.

This means that companies already investing heavily in advertising can get more financial return from the same level of environmental investment than less visible firms.

Why Social and Governance Efforts Still Matter

Despite the study’s findings, the researchers are careful not to dismiss the importance of social and governance initiatives. These efforts may influence outcomes that were not measured in this analysis, such as workplace morale, innovation capacity, regulatory compliance, or long-term organizational stability.

The key takeaway is not that firms should abandon social or governance investments, but that environmental initiatives are currently the most effective way to shape positive media narratives.

What This Means for Companies and Investors

For business leaders, the study offers a clear message: doing good is not enough on its own. How those actions are perceived, reported, and amplified plays a decisive role in determining financial returns.

For investors, the findings suggest that ESG evaluations should account not only for sustainability metrics, but also for media presence and communication strategy.

Environmental sustainability can indeed pay off—but mostly for firms that understand how media visibility shapes reputation and financial performance.

Research Paper Reference:
https://doi.org/10.1016/j.jbusres.2025.115811