Financial Strength meets Sustainability: how Profitability and Company size elevate ESG Ratings in the Hospitality Industry

Abstract Due to its significant environmental impact, intensive resource use, and growing concerns about social and governance issues, today’s hospitality industry faces increased pressure to improve its environmental, social, and governance (ESG) performance. Although financial strength is often associated with better ESG practices and higher ESG scores, little is known about how financial indicators and company size relate to ESG risk scores in the hospitality industry. The aim of this study was to examine the relationship between financial performance, company size and ESG risk for a sample of 63 publicly listed hospitality companies. ESG risk scores were obtained from Sustainalytics and combined with financial data. The results showed a strong negative correlation between ESG risk and market capitalisation, indicating that larger firms in the sample tend to report lower ESG risk. To identify which financial indicators are most closely associated with ESG risk, OLS was applied. Although the initial expectation was that higher profitability would systematically correspond to lower ESG risk, the results point to a more complex balance between asset and equity-based profitability ratios and sustainability. The results provide practical guidance for investors and other relevant stakeholders by indicating which financial metrics are most strongly associated with lower ESG risk in the hospitality industry.