ESG and financial performance: A study of the largest publicly listed companies in the USA, the UK, Germany, Finland and Japan

Thumbnail Image

URL

Journal Title

Journal ISSN

Volume Title

School of Business | Master's thesis

Authors

Date

2023

Department

Johtamisen laitos

Major/Subject

Mcode

Degree programme

Global Management

Language

en

Pages

63 + 19

Series

Abstract

In recent decades, the topic of ESG has gained popularity in the business and academic communities. One of the topics of research interest is the relationship between ESG and financial performance. While it is generally assumed that a better ESG score leads to better financial performance, current research is still limited and has various limitations. Therefore, the focus of this thesis is on the analysis of the relationship between ESG and corporate financial performance. Besides, the study explores relationships of each individual ESG pillar with the corporate financial performance indicators. The research is conducted among the largest publicly listed companies in five markets: the USA, the UK, Germany, Finland, and Japan. Overall, the research data consists of 588 company-year observations from 196 companies. The analysis is done though univariate linear regression analysis with four models, based on Ohlson’s model. The models consist of dependent, independent and control variables. Dependent variables are financial variables, presented by ROA, ROE and P/B. Independent variables are overall ESG score, environmental pillar score, social pillar score, and governance pillar score. Control variables include size, leverage, and beta. All the data is collected from the Refinitiv database. The financial data for dependent and control variables corresponds to the 2020-2022 period, while ESG data for independent variables was lagged by one year and corresponds to the years 2019-2021. The results of the study show an absence of significant relationships between ESG and financial performance in the majority of researched markets and on the aggregate level. Nevertheless, several statistically significant results were identified. The governance pillar has a significant (p less than .001) positive relationship (2.889) with ROE in Germany. The environmental pillar has a significant (p less than .001) negative relationship (-.243) with P/B in Japan. The social pillar has a significant (p less than .001) negative relationship (-.339) with P/B in Japan. The strong positive relationship between ROE and the governance pillar in Germany correlates with prior findings in the German market. The research results also support the current view on the Japanese market, which states that Japanese investors are not valuing ESG performance and give preference to other indicators. The study contributes to contemporary academic ESG research by providing an analysis of the most recent data in an international context with various financial performance indicators. The study also expands the ESG research into usually underrepresented markets, such as Japan. The research also provides a business case for policymakers and businesses. German market results lead to the conclusion that efficient and consistent corporate governance can lead to a more generous ROA in the long term.  Future researchers are encouraged to expand the research by focusing on ESG efficiency analysis in the context of various industries and timeframes.

Description

Thesis advisor

Patala, Samuli

Keywords

ESG, financial performance, sustainability, USA, UK, Germany, Finland, Japan

Other note

Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-202311196897

Collections

[gradu] Kauppakorkeakoulu / BIZ