Strong ESG Investment Reduces Corporate Risk of Failure

Firms that have a strong ESG performance are much less likely to face corporate risks such as potential failure and volatile earnings, according to new research by Durham University Business School.

The study also found that this direct link between corporate risk and ESG investment is even more pronounced when a firm’s biggest stakeholder is their pension fund.

Conducted by Omneya Abdelsalam and Antonios Chantziaras – both Professors of Accounting & Finance at Durham University Business School – alongside colleagues from the University of Bristol, the International Hellenic University, the University of Macedonia and Hamad Bin Khalifa University, the study sought to identify the impact that investing in ESG performance had on corporate risk when it came to tourism firms.

To do so, they studied an international sample of tourism firms – spread across 26 different countries - between 2002 and 2018, tracking their survival status as well as their focus on ESG performance.

They found that those with higher ESG scores had a 1.22% lower risk of volatile earnings and a 12.4% lower probability of failure compared with those with weaker ESG performance.

The reason, the researchers say is because ESG practices strengthen stakeholder relationships and governance, creating resilience in a sector highly exposed to global shocks.

Ownership, however, plays a crucial role. Tourism firms controlled by pension funds – whose focus is on long-term returns – saw ESG’s risk-reducing benefits reinforced. Those backed by hedge funds, with shorter investment horizons, often experienced weaker or even reversed effects.

“Investing in sustainability is becoming increasingly important for firms – especially in the tourism sector – as they work to reduce carbon emissions, demonstrate ethical practices, and strengthen their reputation,” says Professor Omneya Abdelsalam.

“But while these reasons are valuable in their own right, our research highlights another benefit: a strong ESG score can act as a safety net for a firm, helping to lower risk and improve its chances of survival.”

The findings carry important implications across the tourism sector. For managers, ESG can be used strategically to attract investment, build lender confidence, and strengthen governance, helping firms better withstand shocks in a volatile industry.

For policymakers, the study points to the need for sector-specific ESG guidelines and clearer reporting standards. And for long-term investors, particularly pension funds, the research highlights ESG as a practical tool for reducing risk and supporting sustainable returns.

This research was published in the International Journal of Finance and Economics.

If you would be interested in speaking with the researchers, or receiving the full PDF of the research – please contact Peter Remon at BlueSky Education – peter@bluesky-pr.com +44 (0) 77 235 228 30.