ESG and corporate financial performance: A study on differences across countries and industries in Europe

Abstract

We study the relationship between ESG performance and nancial performance in Europe. We bring new insight to this eld of research by dividing the sample into subsamples based on industry and geographic location to investigate di erences in the relationship. We use panel data and a xed e ects model to answer our research question. Our results indicate that ESG increases nancial performance measured by Tobin's Q. This increase is driven by the social ESG dimension. Further, ESG destroys nancial performance measured by ROA. This decrease is driven by the governance ESG dimension. The relationship appears to be strongest among Nordic rms when nancial performance is measured by ROA, Central European rms when measured by Tobin's Q and among rms that operate within manufacturing.