Financial Motivation, ESG Activities, and Firm Profitability

We conduct two studies to examine the relationship between financial performance and ESG practices. We focus on 32 U.S. IT firms from 2010 to 2022. Using a long-difference multilevel fixed-effects model, we find that ESG practices improve Return on Assets (ROA) and Return on Equity (ROE) only in the long term. Economic volatility does not affect ROA, showing the IT sector's stability. The COVID-19 pandemic increased ROA due to higher demand for digital solutions. Political regime shifts do not affect ROA but influence ROE. We also study 307 Fortune-500 companies from 2010 to 2022. We use summary statistics, correlations, and regression models, including Multiple Linear Regression, Fixed Effects, and System GMM. The results show that dividend per share, Tobin’s Q, liquidity, leverage, and company size drive ESG engagement. Company size has the strongest impact. Firms with stronger financial positions are more likely to adopt ESG practices to meet investor expectations and improve their public image. Both studies highlight the strong link between financial strength and ESG engagement, with ESG efforts helping companies manage uncertainty and market demands.