A quantitative investigation into the impact of ESG activities and firm performance: a Stoxx Europe 600 context.
Over the past few years, non-financial activities such as sustainable finance issues have become increasingly important for corporate managers and investors.
According to the European Commision sustainable finance refers to the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable economic activities and projects. (European Commision )
On 11 December 2019, the Commission presented the European green deal, a growth strategy aiming to make Europe the first climate-neutral continent by 2050.
Basic Research Question:
The purpose of this paper is to concentrate on environmental, social and governance performance (ESGP) in total and divided in each component and evaluate their impact on financial performance (FINP).
Do ESG activities have a positive impact on a firms performance and do investors recognize these effects and demand a lower rate of return on their investment?
And how does regulation impact these behaviors?
Hypotheses:
H1: ESG factors have a positive effect on the financial performance of a firm
H2: Regulation does impact the effect
H3: Investors recognize ESG activities and demand a lower rate of return
Methodology:
The study covers a sample selection of companies listed on the STOXX Europe 600 index for the business years 2011-2021 (6600 firm-year observations).
A correlation and regression analysis was carried out to evaluate possible links between ESGP as determined by the Eikon database of Thomson Reuters and accounting and market-based measures of FINP (Return on Assets [ROA] and Tobin’s Q).
