A Sectoral Exploration of Corporate Financial Performance and ESG Integration

Abstract

Purpose: This chapter identifies performance factors that have the strongest impact on companies’ sustainable outcomes and compares the obtained results across different sectors.

Methodology: About 3,384 observations were gathered from 2015 to 2022 from companies in communication services, energy, financials, real estate, and utilities sectors that comprise the ‘STOXX Global ESG Leaders Select 50’ index. The multiple regression model is constructed with companies’ ESG scores as dependent variables and independent variables representing operational, financial, and market performance.

Findings: Companies that tend to have higher operational and financial performance in the financial sector are more likely to have higher ESG performance. The financial performance results of companies showed the strongest statistically significant relationship with environmental and the weakest with governance scores.

Implications: Results benefit private and institutional investors aiming to create more sustainable portfolios. The obtained results indicate that these investors should focus on companies operating in the financial and energy sectors with higher performance results. Better ROE, ROA, and Tobin’s Q may have a negative impact on sustainable outcomes for companies operating in the real estate and utility sectors.

Limitations: Firstly, not all ESG index providers disclose information about their index constituents. Secondly, within the chosen ‘STOXX Global ESG Leaders Select 50’ index, not all constituents had complete ESG data available on the Bloomberg platform. When selecting the analysis period, it was observed that the accessible ESG data on Bloomberg covers a relatively short time span, only from 2015 onwards.

Future research: A larger number of companies by choosing a more comprehensive available ESG index.

Citation

Stankevičienė, J. and Valtoraitė, D. (2024), "A Sectoral Exploration of Corporate Financial Performance and ESG Integration", Grima, S., Maditinos, D., Noja, G.G., Stankevičienė, J., Tarczynska-Luniewska, M. and Thalassinos, E. (Ed.) Exploring ESG Challenges and Opportunities: Navigating Towards a Better Future (Contemporary Studies in Economic and Financial Analysis, Vol. 116), Emerald Publishing Limited, Leeds, pp. 197-220. https://doi.org/10.1108/S1569-375920240000116011