The impact of ESG scores on cost of equity and firm’s profitability

Abstract

In this paper, we empirically investigate the effect of ESG Scores on (1) Cost of equity; (2) Firm’s profitability for a sample of firms operating in the Oil & Gas sector. The obtained results of this study are in line with the literature, supporting the argument that a better Sustainability Performance generates a reduction in the Cost of Equity (Dhaliwal et al., 2014; Matthiesen & Salzmann, 2017; Gupta, 2018). Our findings support arguments in the literature that firms with better ESG performance have higher value and lower risk (El Ghoul et al., 2011, 2018; Chen et al., 2009; Hail & Leuz, 2006), and in the same time highlight some peculiarities deriving from industry-level factors (Reverte, 2012; Gregory et al., 2016)