The Impact of Environmental, Social

Business Administration and Management
The impact of environmental, social

and governance policies on companies’
financial and economic performance:
A comprehensive approach
and new empirical evidence
Gratiela Georgiana Noja1, Bianca Raluca Baditoiu2,
Alexandru Buglea3, Valentin Partenie Munteanu4,
Diana Corina Gligor Cimpoieru5
1 West University of Timisoara, Faculty of Economics and Business Administration, Department of Marketing and
International Economic Relations, Romania, ORCID: 0000-0002-9201-3057, [email protected];
2 West University of Timisoara, Faculty of Economics and Business Administration, Department of Management,
Romania, ORCID: 0000-0001-7365-2753, [email protected];
Romania, ORCID: 0009-0007-0807-2251, [email protected].
Abstract: In the last decade, the use of integrated reports (IR) comprising information on non-financial
indicators from the environment, social, and governance (ESG) category has increased in time.
Companies are now focusing not only on financial reporting but are notably including non-financial
issues in their public reports. In doing so, they seek to align activities with the expectations of their
stakeholders and the society in which they operate, as well as with various regulations, which are
increasingly relevant worldwide. This study examines the impact of ESG reporting on company
performance. Our research involved analyzing financial and non-financial data from 2,400 companies
extracted from the Refinitiv Eikon database. Two methods of quantitative analysis were applied, namely
multiple linear regression models processed by the robust regression method and structural equation
modelling. Main findings entail that ESG indicators had strong and medium effects on company
performance, but these effects varied across different dimensions, requiring a tailored approach
to embed ESG factors in corporate strategy to enhance overall performance. Our paper provides a new
perspective on the current and the potential impact of ESG reporting, based on systematic theoretical
and empirical analyse , with multiple implications for business administration and management.
Keywords: ESG indicators, performance, corporate governance, environment, econometric

modelling.
JEL Classification: G34, L25, M14, Q56.
APA Style Citation: Noja, G. G., Baditoiu, B. R., Buglea, A., Munteanu, V. P., & Gligor Cim
poieru, D. C. (2024). The impact of environmental, social and governance policies on companies’
financial and economic performance: A comprehensive approach and new empirical evidence.
E&M Economics and Management, 27(1), 121–144. https://doi.org/10.15240/tul/001/2024-1-008
2024, volume 27, issue 1, pp. 121–144, DOI: 10.15240/tul/001/2024-1-008 121

Introduction All these are arguments for firms to con-

Environmental, social and governance (ESG) cre- sider non-monetary objectives in their activities.
dentials have become a global trend nowadays On the other hand, finding a balance between
and are increasingly important for companies due increasing financial performance and the com-
to spreading awareness of their responsibility for plex and high expectations of different stake-
sustainable growth and their multi-dimensional im- holders is a challenge for business managers.
pact on society (Kaakeh & Gokmenoglu, 2022). They must prioritize long-term and short-term
Sustainable development in all fields of activity objectives and sometimes forego maximizing
is ever more demanded to become a compul- short-term financial performance to meet urgent
sory requirement at the global level (Chien, corporate social and environmental objectives.
2023) and companies are increasingly using This balance is often achieved when the costs
sustainability strategies and this has led to no- of minimizing the negative environmental and
table shifts in business models and management social impacts of company operations do not
practices (Chang & Lee, 2022). Firms are imple- lead to compromising corporate financial
menting optimal strategies focused on maxi- performance (Busch et al., 2011). Therefore,
mizing stakeholder value while also achieving an increasingly relevant subject and research
the company’s financial goals (Al Amosh et al., theme is the analysis of the links between en-
2022). The practical implementation of this new vironmental, social responsibility and corporate
paradigm is reflected in the increasing efforts governance policies and organizational perfor-
companies are making to properly assess their mance reported by companies.
commitment to sustainability and global long-term Numerous studies have examined the link
development goals (Chang & Lee, 2022). between ESG practices and corporate financial
Firms are keener to publish information on performance, but most of them focus on a sin-
their environmental, social and corporate gover- gle ESG dimension (Barnett & Salmon, 2012;
nance principles engagement and use ESG as Han et al., 2016; Kaakeh & Gokmenoglu, 2022;
a means to share information on business sus- Mu et al., 2022; Wu & Li, 2023). The integrated
tainability with their stakeholders (Chang & Lee, analysis of all three dimensions is considered
2022). Among the directions of this approach quite difficult to address, as ESG topics are
is a focus on indicators to measure results related very broad and comprehensive. In this complex
to an organization’s involvement in addressing framework, the current research aims to fill
environmental and social issues or implementing in the gap and address this challenge by analyz-
policies with an impact on corporate governance. ing the interplay between the ESG dimensions
These indicators are grouped in the so-called and companies’ financial and economic per-
ESG (environment – social – governance) cat- formance in a new comprehensive approach.
egories that integrate the results of companies’ We address a general objective to assess
environmental, social and governance activities whether ESG policy performance leads to in-
(Veenstra & Ellemers, 2020). creased economic and financial performances
ESG indicators have become relevant for and to analyze the three pillars of sustainability,
both companies and investment fund managers the so-called “triple bottom line of sustainability”
or shareholders (Orsato et al., 2015). Investors (Elkington, 1997; Kouaib et al., 2020), namely
are increasingly considering environmental, that environmental performance (planet), social
social, and governance issues when selecting performance (people) and the performance
their portfolios. This information allows them of corporate governance policies lead to an in-
to steer towards investments that can be so- crease in the economic and financial perfor-
cially and environmentally beneficial (Orsato mance of companies (profit).
et al., 2015). It is recommended for companies Our methodological endeavour is based
aiming to implement integrated reporting (IR) on two advanced econometric procedures:
using the IIRC Framework to use company- i) multiple linear regression models processed
specific determinants to encourage IR adoption by the robust regression method with Huber;
(Tiron-Tudor et al., 2022). The criteria used and ii) biweight iterations and structural equa-
by financial and management professionals tion modelling (SEM). We have compiled
to differentiate between various potential in- a complex dataset covering 2,400 companies
vestments include environmental, social and from different industries, whose results for
corporate governance indicators. 2016–2020 (financial and non-financial) are
122 2024, volume 27, issue 1, pp. 121–144, DOI: 10.15240/tul/001/2024-1-008

included in the Refinitiv Eikon database, cov- (Chang & Lee, 2022). The literature highlights
ering numerous ESG indicators along with both conventional shareholder-oriented mana
indicators that reflect the financial performance gement theories (Abdullah & Tursoy, 2023;
of companies. This paper provides new insights Friedman, 1970) aimed at improving financial
that can help to identify the essential mecha- performance and maximizing shareholder ben-
nisms by which ESG actions can enhance efits and stakeholder-oriented management
firms’ financial and economic performance for theories (Freeman & McVea, 2001; Zhang et al.,
each ESG dimension and pillar of sustainability. 2022), the latter focusing on maximizing the so-
Furthermore, it outlines the strategies that com- cial value associated with environmental, social
panies need to design, adopt, and implement and governance (ESG) concepts. These coor-
to achieve this goal. Therefore, the research dinates have also been entailed by Elkington
study provides a new and comprehensive (1997), who proposed the triple-bottom line
perspective on the relationship between ESG (TBL) comprising people, the planet and profit
and firm performance. It enhances the ex- to address the issue of sustainability. Various
isting literature by examining the interlink- authors further extended these concepts
ages between specific ESG dimensions and to the economy, the environment and society
company financial outcomes. (Tseng et al., 2020). Issues related to sustain-
Through a new modelling approach based ability and the ESG dimensions of a company’s
on applying two advanced econometric tech- business are an intensely debated and contro-
niques, we bring accurate and robust results versial topic in the literature, with many studies
that provide a clearer picture of the role that have analyzed the link between ESG prac-
of corporate social and environmental objec- tices and companies’ financial performance.
tives and ESG actions in shaping company However, most studies focus on a single
activities and financial performance, with posi- ESG dimension (Barnett & Salmon, 2012;
tive spillover effects on society at large. Our re- Han et al., 2016; Kaakeh & Gokmenoglu,
search stands out from previous studies due 2022; Wu & Li, 2023), and their overall analy-
to the unique research framework we have sis is quite difficult to address, as ESG topics
designed. After reviewing the existing relevant are very broad and comprehensive. Xie et al.
literature, we have adopted a comprehensive (2019), in the analysis of the impact of ESG di-
approach that involves conducting empirical mensions on company performance, found
analysis using methods that are configured for that the most positively impacting link with
separate ESG dimensions and pillars of sus- corporate efficiency is the one with governance
tainability. We use robust regression models disclosure, respectively social and environmen-
to test the relationship between different tal disclosure. The same study showed that
variables and integrated SEM models to test a moderate level of ESG disclosure is positively
multiple relationships simultaneously. associated with corporate efficiency. Finding
The paper is divided into several sections. a balance between increasing financial perfor-
The first section provides an introduction that ex- mance and the complex and high expectations
plains the topic’s relevance and the approach’s of different stakeholders can be a challenge for
novelty. The next section presents a critical business organizations. They have to prioritize
review and bibliometric analysis of the scientific and forego maximizing short-term financial per-
literature in the field. The paper then describes formance to meet corporate social and environ-
the data and indicators used in the empirical mental objectives. According to some studies,
analysis, along with the methodological ground- the fundamental goals of a business organization
ings. The final sections of the paper present are to minimize the negative impacts of business
the results obtained, complemented by discus- on the environment and society through efficient
sion and concluding remarks. corporate governance mechanisms without
compromising corporate financial performance
1. Theoretical background (Busch et al., 2011).
The number of companies using sustainability To grasp a comprehensive updated view
strategies and publishing information on envi- of the research guidelines, concepts and
ronmental, social and corporate governance is- directions that fall under this topical subject
sues is growing, leading to fundamental changes in current literature, we first performed a bib-
in business models and management practices liometric analysis, followed by a systematic

r eview. A sample of 412 scientific articles pub- 1.1 Environment and performance
lished in relevant journals during 2021–2023 The interplay between the environment (viewed
and indexed by Scopus was extracted and from an environmental perspective) in which
processed in VOSviewer, targeting the key business organizations operate and their finan-
concepts of sustainability, ESG and financial cial performance is also disputed in literature,
performance (Fig. 1). with diverging results from various studies over
Fig. 1 entails that ESG, sustainability and time. According to the neoclassical theory, im-
environmental performance, corporate so- proved environmental performance leads to in-
cial responsibility (CSR) credentials, cor- creased costs. The idea stems from the fact that
porate governance and firm performance by reducing pollution and improving the envi-
are at the core of similar studies published ronment, one can achieve a marginal decrease
recently on this important subject. In this way in net benefits. Porter (1991), however, argues
and in line with the general objective of cur- that compliance with environmental regulations
rent research, we have further structured can benefit all implicated parties. Thus, both
the systematic literature review in three main social welfare and private benefits of com-
directions: environment and performance, panies are on an upward trend. In the same
CSR and performance, respectively corporate paradigm suggested by Ambec et al. (2013)
governance and performance. it can be considered that pollution is equated
sri
stakeholders
energy sector
sustainability performance
esg scores
risk management
india
financial crisis greenwashing
environmental, social, and gov
covid-19
benchmarking
stakeholder
sustainable investment profitability

sustainability reporting
investment sustainable finance csr esg
bibliometric analysis
socially responsible investing corporate social responsibilit
economic impact sustainability commerce social performance
management practice corporate financial performanc environmental performance
sustainable development financial constraints

esg ratings
social and governance (esg) disclosure banking sector
environmental planning financial system firm value
esg disclosure panel data
human performance assessment
esg performance
quantile regression article
china
esg score
roa innovation financing constraints
organization
governance
organizations
social
environment
viewer
Co-occurrence and links between terms/keywords approached in relevant
Fig. 1:
recent literature on sustainability/ESG and firm performance
Source: own (in VOSviewer, using Scopus indexed scientific articles)

to a waste of resources, a reduction of which In the same direction, Chen and Ma (2021)
can lead to an improvement in the resources stated that the impact of green investment in im-
use efficiency. In other words, we can state that proving firms’ long-term performance can be
innovation is a catalyst for the sustainable ac- strengthened by environmental performance.
tivities of business organizations. We can thus conclude that it takes a sufficiently
Lankoski (2000) and Wagner et al. (2001) long time for compliance with regulations from
have presented a third line of thought that an environmental perspective and social initia-
challenges the two conventional views regard- tives addressing this dimension to materialize
ing the relationship between economic and in financial performance.
environmental performance. They propose Considering the above arguments, the re-
that the relationship between these two vari- search hypothesis (H1) is configured:
ables is an inverted U-shaped curve (∩), which H1: Environmental performance leads
means that there is a positive correlation be- to an increase in the economic and financial
tween environmental and financial performance performance of companies.
until the point where the economic benefits
of environmental performance are maximized. 1.2 Corporate social responsibility (CSR)
At that point, the relationship between the two and performance
variables starts to decline. Although the perception of corporate social re-
Empirical results in scientific literature ad- sponsibility seems to be as old as the business
dressing the environmental (E) component fol- itself (Ferramosca & Verona, 2019), CSR was
low the same divergent trend, with both views conceptually formalized by Bowen (1953),
that environmental performance contributes his proposed definition of the concept being
positively to increased financial performance the obligations of business people to pursue
(Chang & Lee, 2022; Ifada et al., 2021; Konar those policies, make those decisions, or follow
& Cohen, 2001) and views that argue the op- those courses of action which are desirable
posite (Cordeiro & Sarkis, 1997; Lu & Taylor, in terms of the aims and values of our society
2018; Stanwick & Stanwick, 1998), as well as (Bowen, 1953). Porter and Kramer (2002) ar-
authors lacking a clear conclusion on this link gue that economic and social objectives have
(Cohen et al., 1997; Earnhart & Lízal, 2007a,b; long been seen as distinct and often compet-
Wagner, 2005). However, Wagner et al. (2001) ing but this represents a false dichotomy and
note that the previously reviewed literature an increasingly obsolete perspective. Many
generally indicates a moderately positive authors argue for the need to take a strategic
relationship between two types of perfor- view of CSR, highlighting criticisms of the char-
mance, namely environmental and financial. acteristics of the traditional approach to CSR
Kaakeh and Gokmenoglu (2022) also suggest and arguing for its consideration as a core
a positive relationship, but with weak empiri- of a firm’s strategy (Maury, 2022; McBarnet
cal evidence that environmental performance et al., 2009; Perez-Batres et al., 2012; Werther
increases companies’ financial performance. & Chandler, 2011). In that way, CSR can be
On the other hand, Cordeiro and Sarkis (1997) viewed as a part of the business strategy that
state that previous empirical proof generally can improve financial and market performance
reveals a negative short-term relationship be- (Berber et al., 2022).
tween these indicators, while the long-term The links between corporate social perfor-
impact appears to be more promising. mance and financial performance are still far
To uncover the underlying factors influenc- from being clarified in literature (Ullman, 1985)
ing the variation in empirical findings regarding and contradictory evidence expressing the re-
the relationship between environmental perfor- lationship between them is noted, both in inten-
mance and financial performance, Horváthová sity and sign (Lahouel et al., 2021; Waddock
(2010) conducts a meta-analysis of 64 results & Graves 1997). Results from empirical work
from 37 empirical studies. The results of this indicate an ambiguous relationship between
study are in line with the views of Hart and Ahuja them (Ho et al., 2021; Jacobs et al., 2016;
(1996) or Konar and Cohen (2001), suggesting Javed et al., 2017). One fundamental reason
the importance of considering significant time for the uncertainty about this relationship
intervals to show a positive effect of environ- is the problem of measuring social performance,
mental performance on financial performance. which is a multi-dimensional construction that

refers to a wide variety of topics. Their aggre- negative, is present in the social and financial
gation into a single form of measurement may performance of companies. Proponents of this
suffer from inconsistency or lack of accuracy position (Ullman, 1985) point out that there are
(Waddock & Graves, 1997; Wang et al., 2015). so many intervening variables that there is no
There is evidence that CSR activities, and reason to argue for the idea of a relationship,
in particular environmental activities, can be except possibly by chance. Comparatively,
an important source of innovation that cre- measurement problems can shield a potential
ates additional revenue so that appropriate link between these indicators (Maury, 2022).
CSR strategies can be positively correlated Several benefits of voluntary reporting
with long-term corporate financial performance, of CSR information have been identified in rel-
being a factor in creating the competitive ad- evant literature: lower corporate risk (Orlitzky
vantage (Ambec et al., 2013; Bocquet et al., & Benjamin, 2001; Orlitzky et al., 2003), lower
2017). However, despite a newly formed posi- cost of equity (Dhaliwal et al., 2011; Plumlee
tive link, it remains unclear whether financially et al., 2015), lower cost of debt (Bauer & Hann,
performing business organizations are more 2010; Goss & Roberts, 2011), higher credit rat-
resourceful when it comes to money spent on ings (Bauer & Hann, 2010), increased perfor-
CSR programs (Ransariya & Bhayani, 2015; Ri- mance from a stock market perspective in times
vera et al., 2017) or whether better performance of financial crisis (Lins et al., 2017), optimistic
across different dimensions of corporate social analyst perceptions (Ioannou & Serafein, 2010)
performance itself leads to better financial out- or improving general reputation (Barauskaite
comes (Edmans et al., 2017). & Streimikiene, 2021).
Those who argue for a negative relation- Along these lines, it could be hypothesized
ship between social and financial performance that (H2):
believe that business organizations with high H2: Social performance leads to the in-
levels of social involvement face a competitive creased economic and financial performance
disadvantage (Aupperle et al., 1985) because of companies.
they incur costs that could be avoided or should
be supported by other stakeholders. 1.3 Corporate governance and
The two approaches outlined above are performance
included, together with a societal approach The emergence and further development
by Van Marrewijk (2003), in an analysis lead- of the concept of corporate governance have
ing to the identification of three perspectives on been associated with companies’ constant
the social role of companies: i) The classical attempts to improve their business in an in-
view (shareholder focus), stating that company creasingly dynamic competitive environment.
social responsibility is represented by the ac- The concept of corporate governance has
tion of increasing the profits (Friedman, 1970); received multiple meanings over time, being
ii) The stakeholder focus – considering that or- associated with management, accounting or
ganizations should take into account the diver- auditing. It has often been used to describe
sity of stakeholder interests (Freeman, 1984); actions taken to guide, direct and govern com-
and iii) The societal approach, with five pillars panies towards achieving business objectives.
– governance, employees, community, environ- The existence of a link between corporate
ment, and customers, which is based on organi- governance and company performance has
zations taking responsibility towards the society been addressed in a multitude of studies, with
they are part of (Liute & DeGiacommo, 2022). different findings, mainly attributable to differ-
Other authors (McWilliams & Siegel, 2001; ences in the theoretical basis of the research
Resmi et al., 2018) argue that there is a neutral and the variables considered to assess
relationship between social performance and corporate governance. Drobetz et al. (2004)
financial performance of companies because highlighted the positive link between corpo-
firms that do not invest in CSR programs will rate governance and market performance,
have lower costs and benefits, while companies expressed by Tobin’s Q ratio, results later
that do will have higher costs and customers confirmed by other studies (Strenger, 2017).
willing to pay higher prices. There are also Using the same performance evaluation indica-
empirical results in the literature that support tor, Kiel and Nicholson (2003) found a positive
the idea that no relationship, be it positive or relationship between the proportion of directors

elected from within the company (as an indica- may influence the level of reporting (Rao et al.,
tor of good governance practices) and the per- 2012). In addition, voluntary disclosure related
formance of companies listed on the Australian to corporate governance by adhering to new
stock exchange in 1996. Dahya et al. (2008) reporting requirements is positively associ-
demonstrated a positive correlation between ated with improved governance practices
the proportion of independent directors and To- at the company level (Silveira et al., 2010).
bin’s Q ratio using a sample of companies with Some studies have found no correlation
a shareholding of at least 10% of voting rights or even negative links between the variables
in 22 countries, with the link being stronger for indicating corporate governance and variables
countries with low shareholder protection. that reflect the company’s performance. For in-
Similarly, Lefort and Urzua (2008) found stance, a study by Ciftci et al. (2019) found
a positive link between the percentage of inde- that the increase in cross-ownership did not af-
pendent directors and the same Tobin’s Q ratio fect market performance when measured using
in a study of Chilean companies. Other studies Tobin’s Q ratio.
have identified a positive link between the per- In this framework, the third working hypoth-
centage of non-executive directors and com- esis (H3) considered is:
pany performance, expressed in terms of stock H3: The performance of corporate gover-
market returns and return on assets (O’Connel nance policies leads to an increase in the eco-
& Cramer, 2010; study of Irish companies) or nomic and financial performance of companies.
between the percentage of non-executive di-
rectors and the Tobin’s Q ratio (Jackling & Johl, 2. Research methodology
2009; study of Indian companies). Klapper and The main focus of this research is to evalu-
Love (2004) and Durnev and Kim (2005) have ate the impact of ESG reporting on company
analyzed government ratings provided by Cred- performance. To this end, the performance
it Lyonnais Securities Asia analysts for listed of ESG policies reported by companies and their
companies in 25 countries. The results of both correlation with indicators reflecting the econom-
studies suggest that corporate governance ic and financial performance of companies were
positively impacts company performance and analyzed. To achieve this objective, two statistical
value. The studies also found that this relation- approaches were employed, namely robust re-
ship is stronger in countries with less stringent gression models and structural equation-based
investor protection standards. Benvenuto et al. models. These methods were used to enhance
(2021) conducted a study in the Romanian and the statistical significance of the results obtained
Italian banking systems and identified a signifi- in the econometric analysis. The research was
cant and positive, lasting influence of the IGC conducted using a sample of 2,400 companies
(corporate governance index) on financial from various geographic areas (Europe, North
performance expressed as profitability in both America, Australia, Asia and South Africa) and
countries. Bawazir et al. (2021), through a study sectors (classified according to Global Indus-
conducted on a sample of non-financial compa- tries Classification Standards – GICS: Energy,
nies, concluded that the presence of women on Materials, Industrials, Healthcare, Financials, In-
the board of directors, audit committee size, fi- formation Technology, Real Estate, Communica-
nancial leverage and firm size are positively cor- tion Services, Utilities, Consumer Discretionary,
related with company performance expressed Consumer Staples), with data covering the peri-
by ROE. On the other hand, the study found od 2016–2020, collected from the Refinitiv Eikon
a negative correlation between audit committee database. All selected companies are classified
size, leverage, and ROA. Additionally, the study based on total assets in medium and large-sized
showed no mediating effect of financial lever- types (minimum USD 10 million according to In-
age on the relationship between corporate ternal Revenue Service – IRS; Liberto, 2023).
governance and firm performance. In order to assess the performance
According to Ahmad-Zaluki and Wan-Hussin of the analyzed companies, five specific eco-
(2010), effective corporate governance is as- nomic and financial performance indicators
sociated with a higher quality of financial (proxies) were used: return on assets (ROA),
information disclosed by companies in their return on equity (ROE), earnings before interest,
periodic reports. However, the size, profitability, taxes, depreciation and amortization (EBITDA),
and industry sector-specific to each company total revenues (TREVENUE) and enterprise

value (ENTVAL), and 12 independent variables Wu & Li, 2023), social (Barnett & Salmon,
reflecting ESG policies and indicators. Both 2012; Han et al., 2016) or governance criteria
dependent and independent variables were (Kara et al., 2015; Kyere & Ausloos, 2021)
chosen by integrating previous studies which and financial performance. Tab. 1 captures
analyzed the relationship between either en- a detailed description of all 12 variables used
vironmental (Kaakeh & Gokmenoglu, 2022; in the econometric modelling endeavour.
Tab. 1: Variables used in the empirical analysis – Part 1
ID/acronym Variable Description/definition

Measures a company’s operating efficiency regardless
of its financial structure (in particular, without regard
Return on
ROA to the degree of leverage a company uses) and is calculated
assets (actual)
by dividing a company’s net income prior to financing costs
by total assets
Return on equity Represents a profitability ratio calculated by dividing
ROE
(actual) a company’s net income by total equity of common shares
Earnings before Represents company’s net income before income tax
interest, taxes, expense and interest expenses are deducted for the fiscal
EBITDA
depreciation, year plus the same period’s depreciation, amortization
amortization of acquisition costs, and amortization of intangibles
Represents revenue from all of a company’s operating
TREVENUE Total revenues activities after deducting any sales adjustments
and their equivalents
Represents the sum of market capitalization, total debt,
preferred stock and minority interest minus cash and
ENTVAL Enterprise value short-term investments for the most recent fiscal period;
market capitalization is calculated by multiplying current total
shares outstanding by latest close price
Captures the extent to which the company has a policy
Resource reduction
RESPOL for reducing the use of natural resources or to lessen
policy
the environmental impact of its supply chain
Represents total carbon dioxide (CO2) and CO2 equivalent
Total emissions in tonnes; the following gases are relevant:
CO2EQT CO2 equivalent carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O),
emissions hydrofluorocarbons (HFCS), perfluorinated compound
(PFCS), sulfur hexafluoride (SF6), nitrogen trifluoride (NF3)
Captures the extent to which the company reports on at least
one product line or service that is designed to have positive
Environmental effects on the environment or which is environmentally
ENVPS
product score labelled and marketed; in focus are the products and services
that have positive environmental effects, or marketed as
which solve environment problems
Captures the extent to which the company sets targets or
objectives to be achieved on diversity and equal opportunity;
Diversity and sets any objective/target to increase or promote diversity
DIVOPPS opportunity in the workplace within a time frame; includes information
objectives score on the promotion of women, minorities, disabled employees,
or employment from any age, ethnicity, race, nationality,
and religion

Tab. 1: Variables used in the empirical analysis – Part 2
ID/acronym Variable Description/definition

Human rights category score measures a company’s
HRIGHTSS Human rights score effectiveness towards respecting the fundamental
human rights conventions
Captures the extent to which the company describes
in the code of conduct that it strives to maintain the highest
Business ethics
POLBES level of general business ethics, along with information
score
on respecting general business ethics or integrity and
information from the code of conduct section
Captures the extent to which the company: has a policy on
fair trade; develops processes in place by which it strives
to develop or market fair trade or other products based on
minimum working conditions and human rights principles;
gathers information to be on the final product; includes
POLFT Fair trade policy if the company develops or markets products based on
SA 8000 (the global standard for decent working condition);
impacted products are food (such as coffee/cocoa beans,
chocolate, tea, herbs & spices, fruits & vegetables, oil, juices,
wine, cereals, and sugar), footwear, clothing and cotton and
precious stones such as diamond (conflict-free)
Board size (number Represents the total number of board members at the end
BSIZE
of members) of the fiscal year
Captures the extent to which the company is under
Bribery, corruption
the spotlight of the media because of a controversy linked
BCFS and fraud
to bribery and corruption, political contributions, improper
controversy score
lobbying, money laundering, parallel imports or any tax fraud
Captures the extent to which the company has a golden
parachute or other restrictive clauses related to changes
of control (compensation plan for accelerated pay-out);
considers if a large or special severance package given
to top executives for their loss of office following a change
Golden parachute
GOLDP in control of the company; includes accelerated vesting
policy
of share-based compensation without any conditions
attached awarded to executives due to loss of office
following a takeover; considers when there is a change
in control clause in the employment agreement of any
of the executives, in the form of severance benefits
Reflects a company’s practices to communicate that it
CSRSTRS CSR strategy score integrates the economic (financial), social and environmental
dimensions into its day-to-day decision making processes
Captures the extent to which the company claims to follow
OECD guidelines
the OECD Guidelines for Multinational Enterprises; general
OECDMNCG for multinational
information on OECD is not considered such as OECD
companies
guidelines for chemical testing
Source: own (based on Refinitiv Eikon (2022) data and definitions)
Detailed statistics of all indicators employed that ESG policy performance leads to an in-
in the empirical analysis are presented in Tab. 2. crease in the economic and financial perfor-
The methodological rationale is constructed mance of companies. The working hypotheses
along the general assumption of this research are tested by applying robust regression models

Tab. 2: Descriptive statistics
N Mean SD Min Max

ROA 8,871 0.05498 0.05995 –1.15 0.53
ROE 9,863 0.13136 0.44694 –15.53 10.35
EBITDA 11,909 1.64e+09 4.18e+09 –1.45e+10 8.18e+10
TREVENUE 11,965 1.01e+10 2.25e+10 –9.09e+09 4.25e+11
ENTVAL 11,500 18.38522 43.53669 –129.40 1209.87
RESPOL 8,061 0.85262 0.35450 0.00 1.00
CO2EQT 5,391 5,560,030 1.99e+07 253.70 3.78e+08
ENVPS 7,969 39.81570 37.27616 0.00 98.85
DIVOPPS 7,864 23.97778 40.50116 0.00 98.53
HRIGHTSS 8,061 35.98810 34.22938 0.00 99.14
POLBES 8,061 46.74917 24.52577 0.00 89.26
POLFT 8,062 0.02047 0.14160 0.00 1.00
BSIZE 7,967 11.00251 3.32226 1.00 31.00
BCFS 7,974 53.97166 19.16557 0.00 63.17
GOLDP 4,746 0.67003 0.47025 0.00 1.00
CSRSTRS 7,974 45.85497 32.97978 0.00 99.88
OECDMNCG 7,975 0.07699 0.26659 0.00 1.00
N total 11,996
Source: own
(RREG) with Huber and biweight iterations and H2: Social performance leads to the increa
structural equation modelling (SEM). sed economic and financial performance of
The robust regression models (RREG) companies.
are designed for each research hypothesis as
in Equations (1–3). ROAit /ROEit /EBITDAit /TREVENUEit /EntVALit =
H1: Environmental performance leads = β0 + β1DIVOPPSit + β2HRIGHTSSit + (2)
to an increase in the economic and financial + β3 POLBESit + β4 POLFTit + εit
performance of companies.
where: DIVOPPS – diversity and opportunity
ROAit /ROEit /EBITDAit /TREVENUEit /EntVALit = objectives score; HRIGHTSS – human rights
= β0 + β1RESRPOLit + β2CO2EQTit + (1) score; POLBES – business ethics score;
+ β3 ENVPSit + εit POLFT – fair trade policy.
H3: The performance of corporate gover-
where: ROA – return on assets (actual); nance policies leads to an increase in the eco-
ROE – return on equity (actual); EBITDA – earn- nomic and financial performance of companies.
ings before interest, taxes, depreciation,
amortization; TREVENUE – total revenues; ROAit /ROEit /EBITDAit /TREVENUEit /EntVALit =
EntVAL – enterprise value; RESRPOL – re- = β0 + β1BSIZEit + β2BCFSit + β3 GOLDPit + (3)
source reduction policy; CO2EQT – total + β4CSRSTRit + β5OECDMNCGit + εit
CO2 equivalent emissions; ENVPS – environ-
mental product score. where: BSIZE – board size (number of mem-
bers); BCFS – bribery, corruption and fraud

Fig. 2: General configuration of the structural equation model
Source: own
controversy score; GOLDP – golden para- the robust regression (RREG) and assess
chute policy; CSRSTR – CSR strategy the effect of environmental (Tab. 1), social
score; OECDMNCG – OECD guidelines for (Tab. 2) and governance (Tab. 3) ESG factors
multinational companies. on companies’ financial performance.
The general configuration of the structural The main results show that there is a sig-
equation model is presented in Fig. 2. nificant positive correlation between resource
Both advanced econometric modelling reduction policies (RESPOL) and return on
procedures provide robust estimates and allow equity (ROE), as well as earnings before in-
to capture direct, indirect and total linkages be- terest, taxes, depreciation, and amortization
tween considered variables in a comprehensive (EBITDA). This can be explained by the fact
approach. Hence, robust regression models that resource reduction policies can lead
firstly calculate Cook’s distance and start the it- to a decrease in company costs. There is also
eration process based on two types of itera- a positive correlation between resource reduc-
tions, Huber and biweight, to drop the outliers tion policies (RESPOL) and total revenues
in the sample, thus avoiding spurious regres- (TREVENUE), entailing that resource reduction
sion. Further, structural equation models allow policies can increase the volume of sales rev-
to test multiple relations simultaneously, the co- enue due to lower costs, allowing companies
efficients associated with the SEM models be- to deliver products at lower prices while still
ing estimated through the maximum likelihood making a profit (volume increase compensates
(MLE) procedure with missing values. for price decrease).
On the other hand, there is a negative corre-
3. Results and discussion lation between the increase in total CO2 emis-
Tabs. 3–5 show the results of our robust regres- sions and ROA (economic performance),
sion models and present a series of reliable ROE (financial performance) and ENTVAL.
estimates that we obtained from the empirical The increase in the CO2 equivalent emissions
analysis. We used Equations (1–3) to apply total indicator (CO2EQT) causes a negative

Robust regression results on the environmental indicators linked

Tab. 3:
with economic and financial performance (H1)
ROA ROE EBITDA TREVENUE ENTVAL
0.64100 1.80600* 0.55100** 0.48600** 0.21600
RESPOL
(0.34800) (0.67900) (0.09570) (0.08650) (0.55100)
−2.46e−08** −3.01e−08** 2.15e−08** 1.93e−08** −1.45e−08*
CO2EQT
(2.96e−09) (6.14e−09) (8.12e−10) (7.44e−10) (4.66e−09)
−0.00581** −0.00418 0.00479** 0.00691** 0.00332
ENVPS
(0.00164) (0.00333) (0.00046) (0.00042) (0.00267)
4.61800** 10.22000** 19.99000** 21.79000** 11.64000**
_cons
(0.34300) (0.66600) (0.09410) (0.08490) (0.54200)
N 4,821 5,062 5,245 5,313 5,139
R 2
0.01700 0.00600 0.14400 0.16400 0.00200
Note: Standard errors in parentheses; *p < 0.01; **p < 0.001.
Source: own
influence (small, however) on economic and further induces a significant positive effect
financial performance (ROA, ROE). On the one on firms’ financial performance. A possible
hand, this influence may be driven by carbon explanation of our estimations is that products
footprint penalties. In the case of the cor- and production lines included in ENVPS may
relation with ENTVAL, one explanation is that require additional investments (increase in total
for the markets as a whole, investors react assets), leading to a reduction in ROA, at least
to environmental issues, even if the intensity in the short and medium term. Companies report-
of the reaction is low. In the case of the cor- ing this product or process certification related
relation of this indicator with TREVENUE, one to the environment generally have higher invest-
explanation lies in the fact that revenues may ments or operational expenses related to these
be associated with a higher volume of activ- certifications, which, on the one hand, justifies
ity (production), which would lead to a higher their public visibility (with the desire/intent to
volume of CO2 emissions. The correlation gain a green notoriety on the market), and
between total CO2 equivalent emissions and on the other hand, leads to lower ROA. Regard-
EBITDA is positive. One explanation could be ing the link between this indicator and EBITDA,
that EBITDA does not reflect global tax benefits/ i.e., TREVENUE, there is a significant positive
penalties related to polluting activities, which correlation, explained by the potential increase
would lead to this direct positive link between in sales (and thus revenues) due to the mar-
the two indicators. The same results were keting of certified products with various green
obtained by Chen and Ma (2021), who have labels. Along the same lines, Chen and Ma
outlined that the firm’s financial outcomes have (2021) also substantiated that environmental
notably improved after constant investment performance and green investment would sig-
in energy conservation and emission reduction nificantly improve firms’ long term performance.
for several years. In the case of the DIVOPPS indicator
In the case of the link between ENVPS and (Tab. 4), there is a negative influence on ROA,
ROA there is a negative relationship (negative ROE and ENTVAL. One explanation is related
estimated coefficient, statistically significant to equal opportunity policies that do not directly
at the 0.1% threshold). These results are oppo- translate into effects such as improved econom-
site to those of Ifada et al. (2021), who showed ic and financial performance, reflecting a rather
that investing in environmentally quality products neutral perception of various stakeholders
proves a strong commitment by companies (especially investors, customers or suppliers),
to achieve environmental performance that being perceived positively only by stakeholders

Robust regression results on social indicators linked with economic

Tab. 4:
and financial performance (H2)
−0.00582** −0.02230** 0.00352** 0.00489** −0.01990**
DIVOPPS
(0.00130) (0.00264) (0.00036) (0.00032) (0.00221)
−0.00183 0.01740** 0.00927** 0.00804** 0.00297
HRIGHTSS
(0.00164) (0.00329) (0.00044) (0.00039) (0.00273)
0.00926** 0.03050** −0.00049 −0.00294** −0.00195
POLBES
(0.00216) (0.00438) (0.00057) (0.00051) (0.00355)
1.30800** 3.57500** −0.00744 0.46200** 2.99100**
POLFT
(0.34900) (0.70900) (0.09520) (0.08540) (0.58200)
4.80600** 10.62000** 20.23000** 22.19000** 13.02000**
_cons
(0.11400) (0.23200) (0.03020) (0.02700) (0.18700)
N 6,819 681 7,731 7,861 7,581
R 2
0.00800 0.01900 0.09600 0.11900 0.01400
Note: Standard errors in parentheses;*p < 0.01; **p < 0.001.
Source: own
in the civic spectrum. In addition, operational of companies in the field of fundamental human
costs may increase even through the provi- rights, especially if these actions are also pro-
sion/implementation of equal opportunities moted/highlighted in their IR.
policies (e.g., increased integration costs for There is a positive correlation between
employees and board members from different the policy business ethics score (POLBES) and
cultural backgrounds). Revenues may increase ROA, i.e., ROE. Improved economic and finan-
in this situation, but it does not compensate for cial performance can be a positive outcome
increased costs. In the case of the link between of adhering to ethical codes and policies. This
this indicator and EBITDA, i.e., total revenues is because a standardized and assumed ethi-
(TREVENUE), there is a positive correlation. cal climate at the organizational level can lead
One explanation is linked to the open organi- to better productivity, especially among employ-
zational culture that is created by the diversity ees. Despite the potential benefits, stakeholders’
of a company’s employees and which also cre- perception of the link between ethics and per-
ates diversity in terms of sold products/services, formance is generally low in intensity. Accord-
which can also lead to an increase in revenues. ing to a study conducted by Lins et al. in 2017,
The same results were also obtained by Bawa- perceptions of stakeholders and investors play
zir et al. (2021) which found that board diversity an important role in establishing a trustworthy
is positively correlated with company perfor- relationship with a firm. The study analyzed
mance expressed by ROE. a sample of 1,673 non-financial firms in the US
There is a positive correlation between and found that investing in social capital can help
the HRIGHTSS indicator and ROE. One expla- build this relationship and have a positive impact
nation is related to the avoidance of additional on a firm’s performance. In this way, Zhang et al.
costs related to sanctions for labour and human (2022) suggest that the managerial stakeholder
rights violations, which reduces ROE. There approach tends to be more robust in guiding
is also a positive correlation of this indicator, companies towards sustainable development
both in terms of the link with EBITDA and to- than the ethical stakeholder perspective.
tal revenues. These results show the positive In the case of the total revenues (TRE
reactions of stakeholders (less investors, as VENUE) indicator, the negative correlation
no significant links of this indicator with en- can be explained by the possible perception
terprise value were found) to positive actions of green-washing policies at a customer level,

Robust regression results on corporate governance indicators linked with

Tab. 5:
economic and financial performance (H3)
−0.27500*** −0.33400*** 0.11800*** 0.11100*** −0.13400***
BSIZE
(0.02450) (0.05560) (0.00555) (0.00472) (0.03740)
0.00156 −0.01710* −0.01510*** −0.01350*** 0.00473
BCFS
(0.00339) (0.00798) (0.00079) (0.00068) (0.00531)
0.00705 0.70800* 0.18600*** −0.03890 1.56200***
GOLDP
(0.15200) (0.34900) (0.03470) (0.02970) (0.23200)
−0.01560*** −0.02660*** 0.01290*** 0.00986*** −0.01930***
CSRSTRS
(0.00224) (0.00512) (0.00050) (0.00043) (0.00338)
0.67500** 0.12400 0.35500*** 0.37600*** 0.21300
OECDMNCG
(0.25300) (0.59000) (0.05980) (0.05110) (0.39700)
8.80900*** 19.43000*** 19.46000*** 21.4900*** 13.8800***
_cons
(0.36800) (0.85000) (0.08390) (0.07140) (0.56000)
N 4,067 4,381 4,658 4,737 4,558
R2 0.05500 0.02200 0.36100 0.37800 0.03100
Note: Standard errors in parentheses; *p < 0.05; **p < 0.01; ***p < 0.001.
Source: own
which leads to a reluctance to purchase goods/ In the case of the link between BCFS and
services. ROE, EBITDA and TREVENUE, a negative
A positive correlation can be observed correlation is found. A plausible explana-
between the POLFT indicator and ROE, ROA, tion is related to the public perception, which
TREVENUE and ENTVAL. One possible expla- shifts in a negative direction when a company
nation is that these policies have led to an in- is associated with such controversies, leading
crease in revenue that surpasses the cost to decreases in revenues and, thus profitability.
increases. This may be due to the growing pub- The relationship between Golden Parachute
lic interest in fair-trade processes and products. (GOLDP) and ROE, EBITDA and ENTVAL
The study also found that investors are more is positive. Potential safety nets granted to man-
likely to respond positively to companies that agers may represent guarantees in the view
include fair-trade information in their reporting. of investors for quality management processes
The correlation between board size with implications for company performance
(BSIZE) and ROA, respectively ROE, is nega- and market value.
tive (Tab. 5). One explanation is the increase The impact of the CSR strategy score
in annual operating expenses due to higher (CSRSTRS) on ROA, respectively ROE, is ne
salaries and bonuses received by more board gative according to our estimations and might
members. As regards the relationship between suggest that the implementation of CSR pro-
board size (BSIZE) and EBITDA, respectively grammes can lead to assumed cost increases
total revenues (TREVENUE), there is a positive and, therefore, to reductions in returns. The cor-
correlation. Larger and more diverse boards relation is positive in the link with EBITDA and
may be associated with larger companies hav- total revenues (TREVENUE). One explanation
ing higher business volumes (total revenue; in this regard lies in the fact that EBITDA does
Pirtea et al., 2015). A statistically significant not reflect the tax benefits that exist globally with
negative correlation is found between board reference to the implementation of CSR pro-
size (BSIZE) and enterprise value (ENTVAL), grammes. For TREVENUE, the positive impact
indicating that investors generally react nega- is associated with favorable stakeholder (es-
tively to a large number of board members. pecially customer) perceptions, especially if

these actions are also publicly reported. There of companies. OECDMNCG exerts a favor-
is a negative impact of CSR strategy score able and notable influence on ROA (model 1
(CSRSTRS) on enterprise value (ENTVAL) in Tab. 5, positive estimated coefficient, sta-
(model 5 in Tab. 5, negative estimated coeffi- tistically significant at the 0.1% threshold), as
cient, statistically significant at the 0.1% level). compliance with good governance principles
This result is in line with the Friedmanian posi- can positively influence economic and financial
tion that the involvement of companies in social performance and firm profitability. In the case
responsibility actions directly affects the share of EBITDA and TREVENUE there is a positive
of value-added that would accrue to investors, correlation. The efficiency of the whole value
who act accordingly (Friedman, 1970). In a dif- chain driven by the application of good gover-
ferent approach, other authors (McWilliams nance principles generates effects including
& Siegel, 2001; Resmi et al., 2018) argue on revenues (better management of distribu-
that there is a neutral relationship between tion networks) and costs (better management
CSR outcomes and the financial performance of supply structure).
Main results of the SEM 1 model

Fig. 3:
(ROA as proxy for company financial performance)
Source: own
SEM 1 results presented in Fig. 3 en- implementation policies, decrease in resource

tail relatively small effects on ROA induced consumption and efficiency of manage-
by HRIGHTSS, CSRSTRS, OECDM, while rial processes due to the existence of golden
CO2EQT, BSIZE exert medium effects and parachutes. On these lines, Ahmad-Zaluki and
POLFT, RESPOL, GOLDP exert large im- Wan-Hussin (2010) have also substantiated
pacts on company financial performance that effective corporate governance is associ-
measured by ROA. The notable effects on ated with higher profitability and improved qual-
economic performance (as measured by ROA) ity of financial information disclosed by firms.
induced by the three indicators (one indicator The second SEM model (Fig. 4) encompass-
in each category) can be explained by the sig- es that the variables DIVOPPS, HRIGHTSS,
nificant increase in revenues due to fair trade POLBES, BSIZE, BCFS, CSRSTRS exert small


Fig. 4:
(ROE as proxy for company financial performance)
Source: own

Fig. 5:
(EBITDA as proxy for company financial performance)
Source: own

effects on ROE, while the variables POLFT, BCFS, while POLFT, CO2EQT, GOLDP, and
RESPOL, CO2EQT, GOLDP, and OECDM exert OECDM exert medium effects on TREVENUE.
large effects on ROE. These results are in line The non-existence of indicators with large ef-
with Bawazir et al. (2021), who also concluded fects on total revenue is explained by the fact
a positive correlation between board character- that performance measured solely by revenue
istics, financial leverage, and company perfor- has a stronger multi-dimensional determination
mance expressed by ROE. The large effects on (i.e., market conjuncture).
financial performance (as measured by ROE) Lastly, the final SEM model (Fig. 7) entails
found for five indicators have similar explana- that variables DIVOPPS, HRIGHTSS, ENVPS,
tions, providing additional arguments for lower BSIZE, BCFS, CSRSTRS exert small effects
operational costs as a result of reduced carbon on ENTVAL, while only OECDM induces me-
emissions and for increased efficiency of mana- dium effects on ENTVAL. The following vari-
gerial processes due to the application of OECD ables exert large effects on ENTVAL: POLFT,
corporate governance principles. RESPOL, CO2EQT, GOLDP. These indicators
The third SEM model (Fig. 5) entails influence firm value from the perspective
that the variables POLFT, RESPOL, BSIZE, of investors, who are interested in the impact
BCFS, GOLDP, and CSRSTRS exert small ef- generated by the implementation of envi-
fects on EBITDA, while CO2EQT and CSRSTRS ronmental, social and governance policies
have medium effects on EBITDA. None of the in- (Pirtea et al., 2015). In this sense, investors
dicators analyzed have large effects on EBITDA, sanction entities for non-compliance with
as performance measured by gross operating social (POLFT) and environmental (RESPOL,
profit is not directly influenced by social, environ- CO2EQT) policies respectively and reward
mental and governance performance. those entities that apply corporate gover-
In Fig. 6 the following variables exert small nance policies through Golden Parachute
effects on TREVENUE: RESPOL, BSIZE, policies for managers.

Fig. 6:
(TREVENUE as proxy for company financial performance)
Source: own


Fig. 7:
(ENTVAL as proxy for company financial performance)
Source: own
3.1 Hypotheses validation TREVENUE and between OECDMCG and

The results of the robust regression models have ROE, EBITDA, respectively TREVENUE.
entailed that hypothesis H1 is partially validated Moreover, the results of structural equation
by the positive correlation between resource models entail strong interdependencies be-
reduction policy (RESPOL) and ROE, EBITDA, tween several key indicators from each consid-
respectively total revenues (TREVENUE), ered dimension and the financial performance
as well as between total CO2 equivalent of companies considered in the analysis.
emissions (CO2EQT) and EBITDA, respec- Therefore, the general hypothesis “ESG pol-
tively TREVENUE and between ENVPS and icy performance leads to an increase in com-
EBITDA, respectively TREVENUE. panies’ economic and financial performance”
In the case of hypothesis H2, robust regres- is partially validated.
sion estimations proved that it is partially validat- Our results are in line with the findings
ed by the positive correlation between DIVOPPS of other researchers. For example, Friede
and EBITDA, respectively TREVENUE, between et al. (2015) have shown that knowledge on
HRIGHTSS and ROE, EBITDA, respectively the financial effects of ESG criteria remains
TREVENUE, between POLBES and ROE, re- fragmented (the issue that assumptions about
spectively ROA and between POLFT and ROE, the financial effects of ESG indicators are only
ROA, TREVENUE and ENTVAL. partially valid). They combined the findings
The third working hypothesis H3: “The per- of about 2,200 other previous individual studies
formance of corporate governance policies leads and concluded that the business case for ESG
to an increase in the economic and financial is empirically very well founded. Moreover,
performance of companies” is partially validated the authors underlined that approximately
by the positive correlation between BSIZE and 90% of the analyzed studies found a nonnega-
EBITDA, respectively TREVENUE, as well as be- tive relationship between ESG and corporate
tween GOLDP and ROE, EBITDA and ENTVAL, financial performance and that a significant
between CSRSTRS and EBITDA, respectively number of these studies report positive findings

with a stable ESG impact over time. Other and the least significant effect is generated
researchers, like El Khoury et al. (2021), identi- by the information about CO2 emissions.
fied U-shaped correlations between ESG indi- Managers should also consider the trans-
cators and financial performance in research parency of information on social indicators
conducted for the banking industry, one of their that induce a cumulative positive influence on
main recommendations being that the analyses the volume of activity and implicitly on the vol-
performed by business organizations should ume of sales (TREVENUE). This further shows
determine a turning point that leads to a de- a positive reaction of stakeholders (primar-
crease in the marginal benefits of ESG policies. ily customers) to companies’ active policies
regarding diversity, defending human rights,
Conclusions the implementation of business ethics, and fair
This research aimed to identify the influence trade principles. As for the other categories
of ESG credentials on financial performance of economic and financial indicators, the ef-
in a comprehensive framework considering fects of information on social credentials are
the three pillars of sustainability. Through a new varied, revealing specific reactions of different
modelling approach, two advanced economet- stakeholders (investors could react differently
ric methods were applied to a newly compiled and less positively than customers to ethical
dataset of companies from various fields and social policies of companies), which are
to test three research hypotheses, each cor- also worth considering in future managerial
responding to a dimension of the ESG triad. strategies. Another practical implication could
The results obtained from the robust regres- emerge from the evidence brought to attest
sion models demonstrated that all hypotheses that the transparency of information regarding
were partially validated, our study confirming corporate governance indicators has predomi-
fragmentary links between ESG indicators nantly positive effects on the EBITDA result and
and financial performance. activity volume indicators (like TREVENUE),
The main theoretical implications of our demonstrating a positive reaction from various
findings are given by the integration within categories of stakeholders (mainly customers
a conceptual model of various ESG indicators and suppliers).
with multiple economic and financial indica- In summary, the ESG effects on profitability
tors with robust evidence that can strengthen indicators (ROA and ROE) as well as on the en-
the knowledge and fill multiple gaps in this field. terprise value (ENVAL) are diverse. At one end
As regards the practical implications, the find- of the spectrum, investors may react negatively
ings are relevant for managers as strategic to information about a high number of board
guidelines for considering the impact of trans- members or controversies about bribery, corrup-
parency: i) of information on the implementation or fraud, with a negative effect on company
tion of corporate policies aimed at reducing value. On the other hand, allocating resources
resource consumption; or ii) of information con- to CSR policies can lead to reduced profitability,
cerning the true value of sissiosans respectively, at least in the short term. All the above-stated
on the environmental characteristics of products/ issues need to be addressed further and em-
services that positively influence both the result bedded in strategic and policy endeavours.
of the activity (EBITDA) and its volume. Our research is not without limitations en-
Our estimations reveal that the effect tailed by a relatively reduced availability of data
is transmitted differentially by the three consid- for certain indicators. One possible constraint
ered indicators (RESPOL, CO2EQT, ENVPS). of this study may reside on the indicators
On one hand, these influences are due to lower chosen to quantify the ESG domains (three
costs resulting from lower resource consump- indicators for the environmental domain, four
tion. On the other hand, they are determined indicators for the social domain, and five indi-
by the increase in the volume of activity and cators for the corporate governance domain),
sales, both due to the environmental consump- as there is a wide range of indicators through-
tion characteristics of products/services and out literature respectively a multitude of other
the direct link between CO2 emissions and vol- indicators. However, this limitation constitutes
ume of activity. The most significant result is giv- the groundings for future research endeavours
en by public information about corporate policies that may consider other corporate aspects
regarding resource consumption reductions, of the ESG spectrum to fully understand their

impact on company performance. Another limi- of the relationship between corporate social
tation occurs because the sample comprised responsibility and profitability. Academy of
companies from both financial and non-financial Management Journal, 28(2), 446–463. https://
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aspects of corporate governance and reporting Barauskaite, G., & Streimikiene, D. (2021).
practices. Thus, future research perspectives Corporate social responsibility and financial
may focus on studies of more structurally com- performance of companies: The puzzle of con-
patible sectors, such as exclusively financial cepts, definitions and assessment methods.
or non-financial sectors, along with analyses Corporate Social Responsibility and Environ-
of the sustainability challenges faced by com- mental Management, 28(1), 278–287. https://
panies in a digital globalized economy during doi.org/10.1002/csr.2048
pandemic and post pandemic times. Barnett, M. L., & Salomon, R. M. (2012).
Does it pay to be really good? Addressing
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The Impact of Environmental, Social

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Business Administration and Management

The impact of environmental, social

Keywords: ESG indicators, performance, corporate governance, environment, econometric

JEL Classification: G34, L25, M14, Q56.

2024, volume 27, issue 1, pp. 121–144, DOI: 10.15240/tul/001/2024-1-008 121

Introduction All these are arguments for firms to con-

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sustainable investment profitability

socially responsible investing corporate social responsibilit

economic impact sustainability commerce social performance

management practice corporate financial performanc environmental performance

sustainable development financial constraints

124 2024, volume 27, issue 1, pp. 121–144, DOI: 10.15240/tul/001/2024-1-008

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126 2024, volume 27, issue 1, pp. 121–144, DOI: 10.15240/tul/001/2024-1-008

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Tab. 1: Variables used in the empirical analysis – Part 1

ID/acronym Variable Description/definition

128 2024, volume 27, issue 1, pp. 121–144, DOI: 10.15240/tul/001/2024-1-008

Tab. 1: Variables used in the empirical analysis – Part 2

ID/acronym Variable Description/definition

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Tab. 2: Descriptive statistics

N Mean SD Min Max

130 2024, volume 27, issue 1, pp. 121–144, DOI: 10.15240/tul/001/2024-1-008

Fig. 2: General configuration of the structural equation model

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Robust regression results on the environmental indicators linked

Note: Standard errors in parentheses; *p < 0.01; **p < 0.001.

132 2024, volume 27, issue 1, pp. 121–144, DOI: 10.15240/tul/001/2024-1-008

Robust regression results on social indicators linked with economic

Note: Standard errors in parentheses;*p < 0.01; **p < 0.001.

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Robust regression results on corporate governance indicators linked with

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Main results of the SEM 1 model

SEM 1 results presented in Fig. 3 en- implementation policies, decrease in resource

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Main results of the SEM 2 model

Main results of the SEM 3 model

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Main results of the SEM 4 model

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Main results of the SEM 5 model

3.1 Hypotheses validation TREVENUE and between OECDMCG and

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analysis of industrial characteristics. Sustain- 60(3), 1461–1493. https://doi.org/10.1111/

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Business Research, 61(6), 615–622. https:// Studies, 24(3), 403–441. https://doi.org/10.1177/

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