Is there a connection between ESG scores and a company’s profitability? Empirical evidence on selected Stoxx Europe 600 firms

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This study scrutinizes the potential correlation between Environmental, Social, and Governance (ESG) scores and the profitability of firms listed in the selected STOXX Europe 600 index. Utilizing panel regression analysis, the study examines data from 385 non-financial companies over the period 2017 to 2021, correlating CSRHub's ESG scores and selected financial variables with corporate profitability measured by ROA. The investigation reveals that, overall, ESG scores do not have a significant impact on profitability, except for the ESG-community sub-score, which shows a slight negative influence. Thus, this paper partially supports studies that show a negative correlation between ESG and profitability, even though such results are in the minority in the literature. The overall results suggest that while ESG scores may reflect a company's ethical stance, they are not a predominant factor influencing its profitability. However, this is not the case for leverage, as the importance of capital structure for profitability is confirmed.

Acknowledgment
This research has been supported by the Scientific Grant Agency of the Slovak Republic under project VEGA No. 1/0579/21.

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    • Table 1. Description of variables
    • Table 2. Descriptive statistics
    • Table 3. Correlation matrix of independent variables in Eq 1.
    • Table 4. Hausman test
    • Table 5. Unit root tests
    • Table 6. Regression results (beta-coefficients and their significance)
    • Table 7. Regression results of lin-log models (beta-coefficients and their significance)
    • Table 8. Tests of research questions – statistical significance of the selected variables from the regression analysis
    • Formal Analysis
      Hussam Musa, Peter Krištofik, Juraj Medzihorsky
    • Funding acquisition
      Hussam Musa, Peter Krištofik
    • Methodology
      Hussam Musa, Peter Krištofik, Juraj Medzihorsky
    • Project administration
      Hussam Musa, Peter Krištofik
    • Resources
      Hussam Musa, Peter Krištofik
    • Supervision
      Hussam Musa, Peter Krištofik
    • Validation
      Hussam Musa, Peter Krištofik
    • Writing – review & editing
      Hussam Musa, Yaroslav Lysenko, Juraj Medzihorsky
    • Conceptualization
      Peter Krištofik, Yaroslav Lysenko
    • Data curation
      Yaroslav Lysenko, Juraj Medzihorsky
    • Investigation
      Yaroslav Lysenko, Juraj Medzihorsky
    • Writing – original draft
      Yaroslav Lysenko
    • Software
      Juraj Medzihorsky
    • Visualization
      Juraj Medzihorsky