The Impact of ESG on Corporate Financial Performance: The Case of Global Energy Companies

The Paris Agreement and Sustainable Development Goals have sparked interest in environmental, social, and governance (ESG) investing in the energy sector, but there is uncertainty about its ability to yield maximum profits. This study aims to mitigate risks associated with ESG investing and promote sustainable business practices by examining the impact of ESG scores on corporate financial performance (CFP) in emerging, developed, and frontier markets. The study selected a subset of firms from 2,407 listed companies in the energy sector on the Bloomberg Terminal, focusing on companies that regularly report ESG data and financial performance data from 2015 to 2022. The dependent variables included profitability, liquidity, leverage, efficiency, growth, and valuation. The analysis found a positive relationship between environmental score and profitability and efficiency, whereas governance score positively influences firm valuation. Social score affects growth and valuation. ESG performance generally leads to better CFP in developed economies, particularly in Europe, the Middle East and Africa, and American regions.