Non-financial firms' Environmental, Social and Governance (ESG) scores and their financial performance

Related to firms being more and more sustainable, this paper aims to investigate if there is a significant relationship between the sustainability (ESG) score and financial performance (ROE, ROA, and Tobin’s Q) of non-financial firms included in the European Stoxx 600 index over a period of three years (2020 – 2022). The study uses financial performance as the dependent variable and ESG score as an independent variable while controlling for leverage, market-to-book ratio, firm size, and GICS sectors. The panel data regression analysis in this paper unveils a positive significant influence of ESG score on ROE, whereas it shows a positive insignificant influence on ROA and a negative significant influence on Tobin’s Q. The study also provides a sectorial-specific regression analysis on the different GICS sectors. The findings in this paper indicate that there is no definitive conclusion that firms with stronger sustainable performance also necessarily exhibit superior financial performance.