IJSER (ISSN 2229-5518) - ESG Scores and Profitability

Thesis Details

Author - Arifa Rezai and Edoardo Tortorella

Finance

Country - Sweden

Email -

arifa.rezai1@gmail.com

Department - Stockholm Business School

University - Stockholm Univeristy

Guide Name - Tor Brunzell

IJSER Edition 9/28/2023

INTRODUCTION

This study aims to increase the knowledge on the topic of ESG scores and the profitability of a company by examining whether a positive relationship exists. More specifically, since this study is focused on a corporate level and not on the effect on investors’ stock returns, Earnings Before Interest and Taxes (hereafter “EBIT”) margin has been chosen as the ideal measure of profitability. The sample is composed of 207 EU-based ETFs held by companies with ESG investing strategies for the time period 2016-2022. To test each hypothesis question, we run three separate fixed-effects regression models: the first one where the EBIT margin is regressed on ESG scores and seven other explanatory variables; a second one where EBIT margin is regressed on individual ENV-SOC-GOV Scores instead; lastly, a third one where ESG scores are regressed on EBIT margin and other explanatory variables, to address the direction of causality issue. Our findings provide no empirical evidence for ESG scores impacting EBIT margin, confirming previous studies results. Although the findings do not confirm the presence of a positive relationship between ESG scores and EBIT margin, they provide knowledge on the absence of a tangible correlation.