Companies that invest heavily in environmental, social and governance (ESG) practices are less likely to face corporate failure or unstable earnings.
The research was conducted by Professor Omneya Abdelsalam from our Business School, alongside colleagues from the University of Bristol, the International Hellenic University, the University of Macedonia and Hamad Bin Khalifa University.
The study examined the impact of ESG investment on corporate risk in tourism firms.
The findings show that the risk reducing benefits of ESG are strongest when firms are owned by long-term investors such as pension funds.
The research analysed tourism companies across 26 countries between 2002 and 2018. The team tracked each firm’s survival status and compared it with its ESG performance.
Companies with higher ESG scores experienced a 1.22% lower risk of volatile earnings. They also had a 12.4% lower probability of failure compared with firms with weaker ESG performance.
According to the researchers, ESG practices strengthen governance and improve relationships with stakeholders. These factors help firms build resilience.
This is particularly important in tourism, a sector exposed to global shocks.
The research found that ownership structure plays an important role.
Tourism firms controlled by pension funds saw stronger risk-reducing benefits from ESG performance.
Pension funds typically focus on long-term returns. This can reinforce the value of sustainable practices.
By contrast, companies backed by hedge funds sometimes experienced weaker effects.
In some cases, the impact of ESG investment was reversed. Hedge funds often operate with shorter investment horizons.
Sustainability is becoming a central part of corporate strategy. This is particularly true in the tourism sector, where firms are working to reduce carbon emissions, demonstrate ethical practices and strengthen their reputation.
The research also highlights an additional benefit. A strong ESG score can act as a safety net. It can lower risk and improve a firm’s chances of survival.
The researchers say the findings have important implications for managers, investors and policymakers.
For managers, ESG initiatives can help attract investment, strengthen governance and build confidence among lenders.
Together, these factors help firms withstand shocks.
The study also highlights the need for clearer ESG reporting standards. Policymakers may need to develop more sector-specific sustainability guidelines for tourism.
For long-term investors, particularly pension funds, ESG can be a practical tool for reducing risk while supporting sustainable returns.
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