Relationship between Financial Performance and ESG Performance: Perspectives from Investors and Firms from Selected Countries in European Union
Bui, Hoai Tuyet Tran (2023)
2023
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2023120534530
https://urn.fi/URN:NBN:fi:amk-2023120534530
Tiivistelmä
In recent years, the business world has been deeply intertwined with changes, concerns, and issues involved with Environmental, Social, and Governance (ESG). With ESG gaining momentum, its relationship with financial performance of a company is also widely discussed. There is undoubtedly a great deal of literature and research on the ongoing debate over whether or not companies that prioritize ESG initiatives perform better than their competitors. This thesis contributes to the controversial topic by investigating the relationship between financial performance and ESG performance from investors’ and firms’ perspectives in selected European Union countries.
In order to perform the investigations regarding the topic, two sets of data were collected, one via a quantitative survey to analyze investors’ perspective and one via Refinitiv financial database to analyze firms’ perspective. The survey was open for approximately three months, from August to October 2023. The survey examines the investors’ awareness and level of perception regarding ESG and whether a better financial return is their underlying motive and expected outcome while trading with ESG in mind. The Refinitiv financial data set investigates the relationship between financial performance (ROA, ROE, P/E, P/B) and ESG performance (Refinitiv ESG score) from selected companies from 10 European Union countries. A descriptive statistical analysis and a correlation analysis between ESG score from 2018 to 2021 and financial ratios from 2019 to 2022 are performed to compare the possible correlation throughout the years. A comparison between ESG leaders and non ESG leaders are also performed. The analysis is taken out on the sector level but not country level.
The results of the survey show that less than half of the participants are aware of the concept of ESG, and less than half of the respondents who are aware of ESG are investors. Reportedly, one of the main goals of incorporating ESG into investment process is to potentially increase financial returns. However, a major expectation of ESG for businesses is to lower greenhouse gas emissions from their supply chains and operations as a whole. Better financial return comes third when talking about expected outcomes of investors for businesses.
The results of the Refinitiv financial data set are mixed. No significant correlations are found for the majority of the observations. Statistically significant negative relationships are found for Communication Services, Health Care, and Financials sectors between ESG score and ROA and P/E. The correlations are not consistent over the years. The findings show that it is not possible to make any inferences about financial success using the ESG score utilized in this investigation.
In order to perform the investigations regarding the topic, two sets of data were collected, one via a quantitative survey to analyze investors’ perspective and one via Refinitiv financial database to analyze firms’ perspective. The survey was open for approximately three months, from August to October 2023. The survey examines the investors’ awareness and level of perception regarding ESG and whether a better financial return is their underlying motive and expected outcome while trading with ESG in mind. The Refinitiv financial data set investigates the relationship between financial performance (ROA, ROE, P/E, P/B) and ESG performance (Refinitiv ESG score) from selected companies from 10 European Union countries. A descriptive statistical analysis and a correlation analysis between ESG score from 2018 to 2021 and financial ratios from 2019 to 2022 are performed to compare the possible correlation throughout the years. A comparison between ESG leaders and non ESG leaders are also performed. The analysis is taken out on the sector level but not country level.
The results of the survey show that less than half of the participants are aware of the concept of ESG, and less than half of the respondents who are aware of ESG are investors. Reportedly, one of the main goals of incorporating ESG into investment process is to potentially increase financial returns. However, a major expectation of ESG for businesses is to lower greenhouse gas emissions from their supply chains and operations as a whole. Better financial return comes third when talking about expected outcomes of investors for businesses.
The results of the Refinitiv financial data set are mixed. No significant correlations are found for the majority of the observations. Statistically significant negative relationships are found for Communication Services, Health Care, and Financials sectors between ESG score and ROA and P/E. The correlations are not consistent over the years. The findings show that it is not possible to make any inferences about financial success using the ESG score utilized in this investigation.