Does Profitability Support Sustainability? Examining the Influence of Financial Performance and ESG Controversies on ESG Ratings

This study explores the relationship between corporate financial performance and ESG, reporting performance across all three ESG pillars: Environmental, Social, and Governance. We used a robust panel dataset of over 28,274 firm-year observations from listed companies worldwide (covering 2019–2023), combining financial metrics and ESG performance scores from the Refinitiv database. Panel regression results indicate that more profitable firms (measured by Net Income and Return on Assets (ROA)) exhibit statistically significant higher ESG performance across all three pillars, reinforcing the view that financial strength supports more comprehensive sustainability efforts. By contrast, firms with more ESG controversies attain significantly lower ESG scores, suggesting that incidents of misconduct or governance failures undermine sustainability reporting credibility. These findings contribute to the literature by empirically validating the dual role of financial success and reputational risk in shaping ESG performance. This study also offers practical insights for regulators, investors, and corporate managers. Strong profitability can facilitate improved ESG transparency, whereas proactive measures and stricter oversight are needed to address controversies, enhance accountability, and mitigate greenwashing.