Authors: Afroditi Papadaki, Olga Pavlopoulou-Lelaki

Title: ESG Scores and Firm Performance

Abstract

This study offers evidence on the association between the Environmental, Social, and Governance performance of the firm as depicted in its ESG and Controversy Scores and its profitability. The study contributes to the literature on the association between ESG firm profile and accounting fundamentals, offering evidence of interest to both academic researchers, practitioners and policy makers. More specifically, the empirical results document a negative association between the ESG score and profitability. The finding is attributed to the short-term profitability strain resulting from the consumption of resources necessary for the implementation of social responsibility initiatives. On the contrary, healthy ESG Controversy scores are positively associated with profitability, a finding attributed to the operational benefits for the firm resulting from higher reputation. Finally, the positive impact of ESG Controversy score (the negative impact of the ESG performance score) is particularly significant (partly offset) for firms that have ethics-related policies in place, and for firms primarily listed in markets where corruption perceptions are relatively low.