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The Effect of ESG Practices on Firms´ Financial Performance of Environmentally Sensitive Industries
Abstract
This study aims to verify whether the adoption of sustainable practices favors firms' profitability. Furthermore, we investigate the possible differences in this relationship between companies that operate in environmentally sensitive industries (ESI) or not. These objectives are examined through a panel data regression, whose data are obtained from 2011 to 2022. The analysis considers 2,095 non-financial public companies from 57 countries, being 1,070 of ESI and 1,025 of non-ESI ones. As a result, both hypotheses were supported - H1: ESG scores positively affect firms' profitability and H2: ESG scores affect firms' profitability differently from that of (non) environmentally sensitive industries. This study contributes to confirming stakeholder and legitimacy theories, as well as mitigating non-consensual results on the topic. Furthermore, investors are encouraged to stake money in companies that actually implement sustainable practices. Finally, these results encourage regulators to continue evolving with global standards for registration and disclosure of these practices
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