Environment, Social and Governance Impact on U.S. Listed Firms: An Empirical Analysis from 2011-2019

Geethu Mariam Rajeev

Student thesis: Master thesis


This study is motivated by the growing interest in Environmental, Social and Governance (ESG) indicators and quantitatively examines their impact on firm performance for U.S. listed firm from 2011-2019. Both market-based (Annual Stock Returns) and accounting-based (Net Income & Return on Assets) measures have been employed in the study. Most of the previous research study the aggregate ESG score. In addition to the aggregate score, the study looks at the individual pillars as well as the change in scores for potential signalling effect on ESG performance. To control for the impact of ESG on firm performance, relevant control variables were introduced. Twelve regression models were set up to test the impact of ESG scores on firm performance. The results postulate that ESG factors have a negative link with stock market returns in the U.S. It was found that the environment component was the driving factor in the aggregate ESG score for stock returns. Interestingly, it was found that the environment factor positively influences profitability (when measured as Net Income). It was also noted that while a higher environment score is associated with higher earnings, an improvement in the score showed a negative link. It was inferred that enhanced environmental practices led to corporate value creation, but investors did not seem to see this value in the study. Looking at the impact of ESG factors on Return on Assets, no statistical significances were observed. It was found that ESG scores do not lead to enhanced market performance in U.S. listed firms in the sample. However, the study showed that ESG can have an impact on firm profitability and could be an important tool for value creation, especially the environment pillar. This study adds to the existing literature on the topic and is of relevance to investors, managers and strategists looking at the impact of ESG on firm performance

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2021
Number of pages91