Does ESG performance have impact on financial performance ?
Nelson, Calvin (2024)
2024
All rights reserved. This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited.
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2024061223039
https://urn.fi/URN:NBN:fi:amk-2024061223039
Tiivistelmä
This study investigates the impact of Environmental, Social, and Governance (ESG) performance on the financial performance of companies within the German DAX 40 index, specifically focusing on accounting metrics such as Return on Assets (ROA) and Return on Equity (ROE). The increasing attention to ESG performance and its implications for financial performance has yielded mixed findings in the literature, with over 80% of studies reporting a positive correlation.
Financial performance data for the study were obtained from verified sources, while ESG scores were sourced from CSRHub. The analysis incorporated three control variables: firm leverage (debt ratio), firm size, and industry classification. The study utilized a dataset comprising 203 firm-year observations. After ensuring all linear model assumptions were met through robust testing, a panel linear fixed effect regression was performed to test the hypothesis that ESG performance influences financial performance.
Contrary to the prevailing positive association reported in much of the literature, the results of this study indicate no significant relationship between ESG performance and financial performance. These findings contribute to the body of research suggesting a non-relationship and highlight the complexity of the ESG-financial performance link.
The study acknowledges that while ESG performance may not show a direct short-term impact on financial performance, it does not undermine the potential long-term benefits of ESG activities, such as enhanced brand recognition and improved production efficiency. Therefore, stakeholders are encouraged to integrate ESG metrics into both short-term and long-term strategic planning.
Future research is recommended to explore the causation relationship between ESG performance and financial performance over extended periods. Additionally, incorporating long-term financial indicators or market-based metrics could provide a more comprehensive understanding of the ESG-financial performance dynamics.
Financial performance data for the study were obtained from verified sources, while ESG scores were sourced from CSRHub. The analysis incorporated three control variables: firm leverage (debt ratio), firm size, and industry classification. The study utilized a dataset comprising 203 firm-year observations. After ensuring all linear model assumptions were met through robust testing, a panel linear fixed effect regression was performed to test the hypothesis that ESG performance influences financial performance.
Contrary to the prevailing positive association reported in much of the literature, the results of this study indicate no significant relationship between ESG performance and financial performance. These findings contribute to the body of research suggesting a non-relationship and highlight the complexity of the ESG-financial performance link.
The study acknowledges that while ESG performance may not show a direct short-term impact on financial performance, it does not undermine the potential long-term benefits of ESG activities, such as enhanced brand recognition and improved production efficiency. Therefore, stakeholders are encouraged to integrate ESG metrics into both short-term and long-term strategic planning.
Future research is recommended to explore the causation relationship between ESG performance and financial performance over extended periods. Additionally, incorporating long-term financial indicators or market-based metrics could provide a more comprehensive understanding of the ESG-financial performance dynamics.