Relationship between ESG and Financial Performance of Companies in the Central and Eastern European Region

Figure 1.

Figure 2.

Figure 3.

Figure 4.

Figure 5.

Relationship between ESG_environment score and ESG_social score and performance for CEE companies in 2017–2021

Variable	Model 3	Model 4
log_env_score	0.0109**
	(0.0053)
log_social_score		0.0266**
		(0.0112)
size	−0.0103**	−0.0077**
	(0.0042)	(0.0035)
leverage	−0.0053***	−0.0045***
	(0.0010)	(0.0009)
GDP_growth	0.0034***	0.0034***
	(0.0007)	(0.0007)
Bank	0.0300**
	(0.0141)
_cons	0.0985***	0.0171
	(0.0316)	(0.0436)
Breusch-Pagan Test:
chi-bar-square	43.48	35.97
p-value	0.0000	0.0000
Hausman Test:
Chi-square	0.80	5.26
p-value	0.9379	0.2615
R2 Within	0.2471	0.2226
R2 Between	0.3147	0.3925
R2 Overall	0.3043	0.3239
Number of obs	205	207

Average value of the ESG score across countries in the years 2017–2021

Country	2017	2018	2019	2020	2021	Mean
Czech Republic	51.0733	52.4467	52.8433	59.3033	65.2600	56.1853
Poland	54.5091	52.4403	52.6769	51.6522	53.6426	52.8712
Romania	39.6650	42.3900	53.5500	71.8900	77.7767	60.0175
Slovenia	58.5300	58.1200	59.2100	57.9200	66.9700	60.1500
Hungary	63.7550	64.8900	64.3725	67.8125	70.8375	66.3335

Descriptive statistics of ESG Governance score for CEE companies

Number of group	Mean	Median	StandDev	Min	Max
#1
ROA	0.04	0.04	0.06	−0.14	0.17
gov_score	32.41	34.00	8.45	15.00	45.00
size	8.55	8.57	1.36	5.89	11.37
leverage	4.82	2.58	5.11	1.31	36.58
#2
ROA	0.05	0.05	0.05	−0.06	0.19
gov_score	52.82	52.50	3.81	47.00	59.00
size	8.62	8.34	1.57	5.79	11.55
leverage	3.94	2.25	3.30	1.17	11.39
#3
ROA	0.03	0.02	0.04	−0.05	0.15
gov_score	80.68	79.00	6.24	73.00	95.00
size	9.74	9.93	1.44	6.96	11.53
leverage	8.46	8.25	5.99	1.33	23.54
#4
ROA	0.05	0.02	0.06	−0.00	0.27
gov_score	66.24	66.00	3.09	61.00	71.00
size	8.97	9.19	1.51	5.80	11.04
leverage	5.32	2.51	3.97	1.15	14.90
Total
ROA	0.04	0.03	0.05	−0.14	0.27
gov_score	54.46	55.00	19.52	15.00	95.00
size	8.91	9.06	1.52	5.79	11.55
leverage	5.48	2.65	4.97	1.15	36.58

Descriptive statistics results for the ESG_score indicator across sectors

Sector	Mean	Median	Std. dev.	Min	Max
Basic Materials	44.3200	39.3000	12.1891	30.7100	72.3700
Consumer Cyclicals	55.5475	55.0650	7.8532	48.5800	63.4800
Consumer Non-Cyclicals	43.5933	44.1000	5.6499	35.1200	53.2400
Energy	56.9795	58.2200	10.9479	30.4900	74.2000
Financial	59.6758	58.9700	14.7235	31.0500	87.1500
Healthcare	58.1330	58.0200	5.8753	49.7800	68.5300
Industrials	45.6570	40.2750	11.7227	34.2400	61.1000
Real Estate	39.8300	39.8300	0.1838	39.7000	39.9600
Retails	65.6400	65.9900	9.2005	51.1300	76.5700
Technology	63.9395	67.4600	10.5718	48.9000	79.9600
Utilities	46.0243	43.3900	11.0404	32.1700	71.8400
Total	55.0022	54.7200	14.0555	30.4900	87.1500

Relationship between ESG score and performance for CEE companies in 2017–2021

Variable	Model 1	Model 2
log_esg_score	0.0507***	0.0536***
	(0.0163)	(0.0162)
size	−0.0096***	−0.0121***
	(0.0036)	(0.0038)
leverage	−0.0046***	−0.0052***
	(0.0009)	(0.0010)
GDP_growth	0.0035***	0.0034***
	(0.0007)	(0.0007)
Bank		0.0203*
		(0.0117)
_cons	−0.0613	−0.0548
	(0.0578)	(0.0575)
Breusch-Pagan Test:
chi-bar-square	37.41	36.89
p-value	0.0000	0.0000
Hausman Test:
Chi-square	3.28	2.04
p-value	0.5127	0.7276
R2 Within	0.2379	0.2402
R2 Between	0.4042	0.4345
R2 Overall	0.3360	0.3517
Number of obs	207	207

Descriptive statistics of ESG Social score for CEE companies

Number of group	Mean	Median	StandDev	Min	Max
#1
ROA	0.06	0.04	0.07	−0.08	0.27
social_score	42.41	41.00	4.80	34.00	50.00
size	8.36	8.99	1.54	5.79	10.77
leverage	3.83	2.16	3.34	1.31	11.54
#2
ROA	0.02	0.03	0.03	−0.05	0.09
social_score	26.48	27.00	4.15	13.00	32.00
size	7.92	7.64	1.06	6.22	9.90
leverage	3.82	2.54	2.75	2.10	11.32
#3
ROA	0.05	0.03	0.05	−0.13	0.17
social_score	63.92	64.00	5.67	52.00	73.00
size	9.18	9.37	1.47	6.51	11.42
leverage	6.00	4.61	4.65	1.15	22.01
#4
ROA	0.03	0.02	0.04	−0.14	0.14
social_score	79.60	78.00	5.11	74.00	92.00
size	9.62	9.67	1.32	6.88	11.55
leverage	7.38	7.03	7.00	1.25	36.58
Total
ROA	0.04	0.03	0.05	−0.14	0.27
social_score	57.14	61.00	18.22	13.00	92.00
size	8.91	9.06	1.52	5.79	11.55
leverage	5.48	2.65	4.97	1.15	36.58

Descriptive statistics of ESG Environmental score for CEE companies

Number of group	Mean	Median	StandDev	Min	Max
#1
ROA	0.05	0.03	0.05	−0.06	0.19
env_score	23.61	25.00	10.97	0.00	39.00
size	8.27	7.68	1.47	5.79	11.42
leverage	4.59	2.53	3.81	1.15	21.75
#2
ROA	0.03	0.02	0.04	−0.14	0.10
env_score	76.29	74.00	6.54	67.00	91.00
size	9.53	9.76	1.19	7.29	11.35
leverage	6.94	7.03	5.59	1.44	36.58
#3
ROA	0.05	0.04	0.06	−0.13	0.27
env_score	51.94	50.00	7.23	41.00	65.00
size	9.08	9.06	1.57	6.22	11.55
leverage	5.24	2.36	5.33	1.25	23.54
Total
ROA	0.04	0.03	0.05	−0.14	0.27
env_score	48.34	48.00	23.04	0.00	91.00
size	8.91	9.06	1.52	5.79	11.55
leverage	5.48	2.65	4.97	1.15	36.58

Average value of the ESG score across sectors in the years 2017–2021

Sector	2017	2018	2019	2020	2021	Mean
Basic Materials	72.3700	44.0400	43.2900	43.2217	41.2260	44.3200
Consumer Cyclicals	48.5800	49.0200		63.4800	61.1100	55.5475
Consumer Non-Cyclicals	39.5450	40.6000	43.1033	47.2967	45.8150	43.5933
Energy	58.7300	57.4150	53.4400	55.3900	60.0020	56.9795
Financial	54.1429	56.7356	60.1163	60.9841	65.2765	59.6758
Healthcare	56.3550	53.9500	55.8950	56.7150	67.7500	58.1330
Industrials		43.2300	47.7850	50.4700	43.4567	45.6570
Real Estate				39.9600	39.7000	39.8300
Retails	51.1300	65.9900	65.9800	68.5300	76.5700	65.6400
Technology	64.8425	61.9575	64.9875	63.8975	64.0125	63.9395
Utilities	46.9650	45.4575	42.6640	45.0800	50.0300	46.0243

Descriptive statistics of ESG score for CEE companies

Number of group	Mean	Median	StandDev	Min	Max
#1
ROA	0.04	0.03	0.05	−0.08	0.19
esg_score	38.23	39.09	3.92	30.49	43.81
size	7.95	7.49	1.24	5.79	10.76
leverage	3.33	2.46	2.53	1.32	11.32
#2
ROA	0.06	0.06	0.06	−0.13	0.27
esg_score	53.35	54.18	5.13	44.36	62.37
size	8.79	9.06	1.45	5.80	11.52
leverage	4.97	2.53	3.86	1.15	15.52
#3
ROA	0.03	0.02	0.04	−0.14	0.17
esg_score	71.82	71.73	6.12	63.10	87.15
size	9.89	10.05	1.22	7.49	11.55
leverage	8.02	7.80	6.56	1.25	36.58
Total
ROA	0.04	0.03	0.05	−0.14	0.27
esg_score	55.00	54.72	14.06	30.49	87.15
size	8.91	9.06	1.52	5.79	11.55
leverage	5.48	2.65	4.97	1.15	36.58

Model variables description

Variable	Description
ROA	Return on assets before taxes (expressed as a percentage)
esg_score	Value of ESG Score according to Refinitiv
env_score	Value of Environmental Pillar Score according to Refinitiv
social_score	Value of Social Pillar Score according to Refinitiv
gov_score	Value of Governance Pillar Score according to Refinitiv
size	Natural logarithm of the total asset value
leverage	The ratio of the total asset value to the total equity value (expressed as a percentage)
GDP_growth	Annual GDP growth rate at market prices based on constant local currency (expressed as a percentage)
Bank	Binary variable; takes a value of 1 if the company belongs to the financial sector, 0 otherwise

Descriptive statistics

Variable	Obs	Mean	Std. dev.	Min	Max
ROA	207	4.3198	5.3402	−14.0000	26.5000
esg_score	207	55.0022	14.0555	30.4900	87.1500
env_score	207	48.3430	23.0429	0.0000	91.0000
social_score	207	57.1449	18.2235	13.0000	92.0000
gov_score	207	54.4638	19.5224	15.0000	95.0000
size	207	8.9057	1.5177	5.7854	11.5493
leverage	207	5.4819	4.9737	1.1500	36.5800
GDP_growth	207	3.6447	3.5834	−5.5030	8.2111
Bank	207	0.3865	0.4881	0.0000	1.0000
log_env_score	205	3.7084	0.7397	0.0000	4.5109
log_gov_score	207	3.9202	0.4190	2.7081	4.5539
log_social_score	207	3.9837	0.3744	2.5649	4.5218
log_esg_score	207	3.9738	0.2627	3.4174	4.4676