Degree

Master of Science in Finance

Department

Department of Finance

School

School of Business Studies (SBS)

Date of Submission

Spring 2024

Supervisor

Dr. Irum Saba, Professor, Institute of Business Administration, Karachi

Project Type

Thesis

Document Type

Restricted Access

Pages

49

Keywords

Sustainable Financing, Socially Responsible Investing, ESG, Firm Value

Abstract

Purpose: This research explores the impact of ESG scores on the financial performance of firms in the US market, focusing on understanding how ESG considerations can influence long-term success and risk management. Methodology/Approach: The study utilizes annual data from NYSE-listed firms covering the years 2005 to 2023, including the periods of the 2008 financial crisis and the COVID-19 pandemic. Data are collected from the Refinitiv Database (LSEG Data and Analytics). The research employs Panel GMM with fixed effects to address potential issues arising from the panel datasets, with the ESG score as the independent variable and ROA, ROE, and MTBV as dependent variables. Findings: The findings support the null hypothesis that ESG firms outperform non-ESG firms, indicating a significant positive relationship between ESG scores and financial performance. These results challenge the Efficient Market Hypothesis (EMH), which posits that all market information is already reflected in asset prices, offering no opportunity to outperform the market. Specifically, firms with higher ESG scores tend to exhibit better ROA, ROE, and MTBV, suggesting that ESG considerations contribute to improved financial performance. Originality/Value Addition: This study provides useful insights into the relationship between ESG scores and firm performance, endorsing for the integration of sustainability into financial analysis and decision-making. The study aims to explore the benefits of corporate governance practices and sustainability approaches to investment. Furthermore, it also sheds light on the importance of, and ever-evolving debate on, the motivation behind ESG adoption and its long term investment advantage and financial successes. Keywords: Sustainable Financing, Socially Responsible Investing, ESG, Firm Value

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