Disaggregating ESG Controversies and Firm Profitability: A Nonlinear Analysis of Environmental, Social, and Governance Dimensions

ESG is relatively new idea and commercial concern in Pakistan. Current research aims to explore the effect of disaggregate environmental, social and governance controversies under the role of ESG performance moderat on the return on equity (ROE). In this paper a sample of 490 time observation related to Pakistani, PSX listed companies are adopted. Where, the authors check an individual negative effect of Ec, Sc, and Gc controversies across negative issues. This study uses the of ROE calculated, total income divided by shareholders equity. The results indicated negative impact, environmental controversies, social controversies and governance controversies simultaneously reduce ROE and increase COE. This negative impact is mitigated when associated with ESG performance and increase ROE in long term. The practical implications indicates that companies have to take good care of environmental issues, such as (resource impact, product impact and biodiversity), social issues ( labour disputes, workplace safety incidents, product responsibility failures, and human rights violations), and governance issues ( corruption, fraud, bribery, accounting irregularities, executive misconduct, conflicts of interest, and weak board oversight), because react of investors are accordingly. There is no evidence of direct effects of ESG performance on ROE. However, it can mitigate effect of each controversies (Ec, Sc, and Gc) on ROE relationship and make practice of ESG significant for Pakistani investors. The implications of social and effects of disaggregated ESG controversies and financial performance should be examined along assumption, where, bad events news (ESG controversies) weighted more and its affects are heavier than positive news of ESG scores. No studies have yet specifically assessed the effect of disaggregated ESG controversies on ROE among  manufacturing listed companies. , this paper contribute to the existing literature  by isolating the effect of disaggregated ESG controversies in  moderating role of positive ESG performance and their effects on ROE of companies.