The Relationship between Profitability Index and ESG Scores: A Machine Learning Analysis of the STOXX Europe 600.

This study investigates the existence of a positive relationship between environmental, social, and governance (ESG) performance and corporate profitability, in the context of increasing stakeholder attention to corporate sustainability practices. Drawing on the theoretical frameworks of agency theory and signalling theory, this research empirically evaluates the relationship between both overall ESG scores and their individual components (environmental, social, and governance) and firm operational performance, proxied by two accounting-based measures: Return on Assets (ROA) and EBIT Margin. The empirical analysis is conducted through Panel OLS regression models with fixed effects (developed in a Python environment using the Jupyter Notebook interface) and applied to a sample of 402 European firms listed in the STOXX Europe 600 index (as sourced from Refinitiv Eikon) over a ten-year period from 2013 to 2022. The results reveal a positive and statistically significant relationship between aggregate ESG scores and corporate profitability. However, the disaggregated analysis of the ESG dimensions indicates heterogeneity in both the magnitude and significance of the coefficients. These findings, which corroborate the positive impact of ESG performance on firm profitability, suggest that targeted investments in specific facets of corporate sustainability may enhance operational financial outcomes.