How ESG performance affects the corporate financial performance. An empirical study of the energy sector

Abstract

This thesis investigates the relationship between environmental, social, and governance (ESG) performance, corporate financial performance (CFP), and firm value by focusing on the energy sector. For this purpose, the study uses a panel dataset comprising of 116 listed firms and 928 firm-year observations during the period 2012 – 2019. The energy sector comprises of two industries and the results indicate that the two industries are affected differently when engaging in ESG. The companies in the oil, gas – and consumable fuels industry is affected positively towards the financial performance, while energy equipment and services are affected negatively. The results from the pillars suggests that the social pillar is affecting financial performance the most, and the governance pillar is second most affecting. However, it is indicated that the pillars also had a negative association to financial performance. When looking at the current study in the context of theories, it is in line with the instrumental stakeholder theory, regarding the relationship between ESG and financial performance. It also found evidence that can relate the current study in the context of the slack resources theory and managerial opportunism hypothesis, when exploring the relationship between financial performance and ESG. The aim of the current research study is to provide a broader perspective on ESG and financial performance, investigate how ESG is reflected in value generation and contribute with important and valuable information which can be beneficial to government, investors and business managers.