Finsif tukee vuosittain vastuullisen sijoittamisen tutkimusta stipendein
Finsif jakaa stipendejä vastuullisesta sijoittamisesta kiinnostuneille opiskelijoille ja tutkijoille. Stipendien jaon tarkoituksena on edistää vastuullisen sijoittamisen tutkimustyötä. Stipendejä jaetaan vuosittain enintään 8000 euron summalla. Vuoden 2025 stipendihaku alkaa keväällä. Lisätietoa
It can be stated that the consideration of ESG (Environmental, Social, and Governance) factors has become a prevailing norm in both business operations and financial markets. This raises the question of how responsibility is valued by investors and other stakeholders, and how it is reflected in a company’s financial performance. The topic has been extensively studied with global datasets, and ESG factors have been found to have a significant impact on both a company’s market value and profitability. However, an interesting and somewhat less explored aspect is the influence of industry on the relationship between ESG and corporate financial performance (CFP). It is recognized that different industries face distinct ESG challenges and operate in varying regulatory environments. Furthermore, previous research, particularly focusing on American, Asian, and British companies, has identified asymmetric ESG-CFP relationships across different sectors.
In my thesis, I aimed to investigate how the relationship between ESG and CFP varies across different industries in EU region, using return on assets (ROA) and Tobin’s Q to measure CFP. The sample includes over 800 publicly listed companies operating in EU countries between 2012 and 2022. The European Union can be considered as a pioneer in responsibility, and it plays a significant role in regulating companies’ ESG practices. A current example of regulatory development is the Corporate Sustainability Reporting Directive (CSRD), which emphasizes the relevance of the topic.
In accordance with previous research, the results of my thesis indicate that the relationship between ESG and financial performance is asymmetric across different industries. The results tentatively suggest that in ESG-sensitive industries, such as energy, utilities, and materials, ESG investments have a stronger positive effect on CFP compared to non-sensitive industries. This indicates that in ESG-sensitive industries, where ESG practices are seen as critical, improvements significantly enhance profitability. This positive relationship is also evident in the industrials sector, where ESG practices can lead to benefits from regulatory incentives, operational efficiency, and risk management. Additionally, the consumer goods sector, where ESG efforts are typically clearly visible to customers and other external stakeholders, has a favorable ESG-CFP relationship.
Conversely, the results tentatively suggest that in certain industries, ESG factors do not have a statistically significant impact on CFP, and sometimes ESG initiatives may even negatively affect financial performance. Specifically, in the financial sector, which is highly regulated and where ESG investments primarily focus on enhancing social and governance responsibilities, the impact on profitability can be adverse. This may be attributed to factors such as ESG initiatives being linked to reduced risk-taking and enhanced product responsibility, potentially resulting in more conservative investment strategies and less aggressive interest rates and fee structures for clients.
In summary, the results indicate that although companies are increasingly required to engage in responsible practices, from a financial perspective, ESG is not equally value-creating across all industries. The findings show that companies within the EU can achieve significant financial benefits from investing in ESG. On the other hand, in some sectors, ESG investments that might offer advantages by many other measures could negatively impact profitability or the company’s valuation.
However, it should be noted that my thesis focused on analyzing the short-term effects of ESG, implying that the potential positive impacts emerging in the longer term are not reflected in the results. Furthermore, my thesis does not explore the underlying reasons for the observed asymmetry across different industries. Investigating these factors would provide valuable insights and serve as a meaningful direction for future research.
Venla Haavisto
Vaasan yliopisto
The study can be found here.
