Is Doing Good Equivalent to Doing Well? Assessing the Impact of ESG Performance on Financial Performance. A Study of High ESG-performing European Corporations

Marco Romano & Joakim Tandberg

Student thesis: Master thesis


Driven by a growing concern about the future of our planet, public awareness and regulatory changes have led to an increased focus on non-financial performance of publicly listed corporations. Nevertheless, opinions remain divided as to whether good Corporate Social Responsibility (CSR) performance also leads to superior financial performance. To explore this relationship we utilize ESG scores as proxies of CSR performance. Thus, the purpose of our thesis is to focus on the environmental, social and governance performance (ESGP) and disclosure (ESGD) scores and evaluate their impact on financial performance (FINP). Similarly, the effects of the underlying pillar scores E, S and G are assessed individually. Our research spans a sample selection of companies listed in one of the top-eight performing European countries, ranked after country ESG performance, for the business years from 2009 to 2019 (1968 firm-year observations). We conduct a regression analysis, utilizing fixed-effect panel regression, to evaluate the possible links between the aforementioned ESG measures and accounting- and market based measures of FINP (ROA, Tobin’s Q). Additionally, a new perspective to current literature is added by observing the development of said relationship over time. Overall, we identify a negative impact of ESGP and ESG Don Tobin’s Q, but no impact on ROA. When assessing the three pillar components of ESGP, no significant link is established. However, exploring a change in effect of ESG measures on FINP across our sampling period, we find a significant positive trend for the effect of ESGP, as well as the Environmental Pillar and Social Pillar, on Tobin’s Q over time. Similarly, the link between ESGD and ROA becomes consistently positive in the latter years of our sampling period. This study makes some key contributions to the empirical CSR research. In particular, through our multi-country study, we test the inherent link between ESG measures and FINP for a set of companies that exhibit an overall high level of ESG performance. Additionally, we assess the link between ESG measures and FINP in a dynamic manner, exploring the changing characteristics of the relationship over time. In observing an overall negative relationship, which subsequently becomes less negative and turns positive over time, our results can be understood as a signal for investors and managers alike. Following this trend in the future, a wider acceptance of the importance of good sustainability performance for financial performance is foreseeable.

EducationsMSc in Finance and Investments, (Graduate Programme) Final ThesisMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2020
Number of pages112