Unveiling the Impact of ESG Controversy Scores on Financial Performance - Assessing the Financial Repercussions of ESG Controversies in the North American Financial Sector

Abstract

This thesis aims to analyse the relationship between ESG Controversy Scores and financial performance of financial firms operating in North America, using ROE and ROA as proxies of economic results. To establish the relationship between the ESG metric and the firm values, and to understand its nature and behaviour, a multi-linear panel data regression has been adopted, employing data between the years 2010 and 2023 taken from the Eikon and Compustat databases. This research is grounded in existing literature, which supports the integration of ESG factors as a predictor of a firm’s financial results in various industries and demonstrates its impact on financial results; the objective of this thesis is to extend this given knowledge also to firms in the financial sector of the North American region. The methodology section defines variables and models for the regression analysis, with a particular focus on the alignment of ROE with financial firms and the broader efficiency assessment provided by ROA. The findings reveal that there are different degrees of significance in relation to changing models, but an overall positive correlation between ESG Controversy Score and financial performance. Robustness checks, including tests for multicollinearity, heteroscedasticity, and autocorrelation, are conducted to ensure the reliability of the results. This study attempts at giving useful inputs for investors, policy makers as well as managers by emphasizing on the importance of ESG factors while determining finance strategies and outcomes.