ESG scores as financial performance predictors: a cross-industry analysis of European listed companies.

This thesis explores whether Environmental, Social, and Governance (ESG) performance can predict the financial results of European publicly listed companies between 2017 and 2023. Using a large panel dataset and fixed-effects regression models, the study examines both overall and pillar-level ESG effects on firm profitability, measured through return on equity (ROE), return on assets (ROA), and EBITDA. Four models were developed to capture short, medium, and long-term relationships, as well as variations across industries and countries. At the European level, the results show that ESG performance does not have a strong or consistent short-term impact on profitability. This suggests that sustainability initiatives alone do not immediately translate into financial gains. However, once industry and country differences are considered, a clearer and more positive picture emerges. Sectors that depend heavily on reputation, customer trust, and service quality, such as construction, retail, and information services, show stronger financial benefits from ESG engagement. In these industries, being socially responsible and transparent seems to enhance credibility and attract investors. Conversely, for capital-intensive or resource-based sectors, the payoffs from ESG investments appear slower to materialize. Among the ESG pillars, the social dimension appears most influential, particularly in industries where stakeholder relationships and human capital are central to success. The environmental pillar gains significance in highly regulated or sustainability-driven sectors, while the governance pillar provides an essential foundation that supports both. Overall, the findings highlight that ESG should be viewed not as a universal profit driver but as a strategic investment that yields long-term value when aligned with industry conditions and institutional support. These findings highlight that sustainability, when approached consistently and strategically, can become a source of lasting financial strength and resilience for European companies.