The Impact of ESG Performance on Financial Profitability: Evidence from the Aviation Sector in EU Countries

This study investigates the impact of environmental, social, and governance (ESG) practices on the financial performance of airlines, with profitability measured by return on assets (ROA). While the ESG–performance nexus has been widely explored in the finance literature, empirical evidence specific to the airline industry remains limited, despite the sector’s significant contribution to global emissions and its unique regulatory and competitive pressures. Drawing on stakeholder theory and the triple bottom line framework, the study examines whether ESG engagement serves as a strategic driver of financial outcomes alongside its social and environmental objectives. Using a panel dataset of European Union airlines covering an eleven-year period, the analysis employs Random-Effects estimators with cluster-robust standard errors, complemented by Feasible Generalized Least Squares (FGLS) estimation as a robustness check against heteroskedasticity and autocorrelation. Regression results, reported across four model specifications, reveal a consistently positive and statistically significant association between ESG performance and ROA. This relationship indicates that higher ESG scores enhance firm profitability. Disaggregated findings further demonstrate that each ESG sub-dimension—environmental (E), social (S), and governance (G)—exerts a positive and statistically significant effect on ROA, underscoring that diverse sustainability-related practices collectively strengthen financial outcomes. The study contributes to the literature by offering sector-specific evidence on the ESG–performance relationship in aviation. By integrating stakeholder and triple bottom line perspectives, it highlights that ESG practices are not merely compliance-oriented but represent a strategic pathway to profitability, competitive advantage, and long-term value creation.