The relationship between organizational focus on AI, financial growth and sustainable development: Evidence from Europe

This study examines the link between organizations' focus on AI and their environmental, social, and governance (ESG) score. Furthermore, this study examines the relationship between organizations' AI focus and financial performance, measured by return on assets (ROA) and Tobin's Q. This manuscript relies on observations from a balanced panel of data comprising 432 publicly listed companies headquartered in Europe. The sample excludes banks and insurance companies, given their distinct accounting, governance, and capital structure standards. The sample consists of observations spanning from 2015 to 2023. Observations are gathered from LSEG Data & Analytics. We conduct baseline regression models. To ensure rigor, we also applied Hausman tests, variance inflation factors (VIF), and several robustness checks. The present manuscript is grounded in the economic theory framework. The empirical findings indicate: I) a positive and significant association between organizations' AI focus and their environmental (b = 0.127***; p = 0.001) and social pillar scores (b = 0.072**; p = 0.023); II) a positive and significant link with financial performance (ROA: b = 0.094**; p = 0.012; TobinQ: 0.103*; p = 0.051) and; III) a positive but statistically insignificant relationship with governance pillar scores (b = 0.030; p = 0.166). The obtained results yield significant contributions to both theory and practice. Specifically, the obtained results clarify and reconcile previously heterogeneous findings in the literature. Furthermore, it emphasizes that an organizational focus on AI may contribute to advancing the United Nations Sustainable Development Goals, while simultaneously enhancing financial performance. • The impact of firms' AI focus on financial and sustainability outcomes is examined. • The sample is composed of organizations whose headquarters are located in Europe. • The analysis reveals the positive and significant impact AI has on firms' financials. • The results show the positive effect AI focus has on environmental performance. • The results show the positive effect AI focus has on social performance.