Financial firm’s performance: a comparative analysis based on ESG metrics and net zero legislation

Abstract

For stock market investors, it is difficult to choose where to allocate their financial resources; furthermore, sustainable investment has become a choice to ensure better financial performance (FP). This research proves that countries and companies lined up with climate change laws are better options for investing and mitigating risks. The sample of the study is based on a net zero emission criteria, so six countries were identified with approved legislation, and a comparison between the largest market cap firms of these countries and the largest market cap of the world (Benchmark) is made to analyze their FP during the COVID-19 first year. Furthermore, regression models were run to review which ESG factor is the most related to predicting the ESG combined score for the firms. The results show that the firms had a better performance than the Benchmark and that the social factor ‘S’ is the most correlated to the ESG combined score. The relevance of this article lies with the relevance of investing in companies aligned with net zero emissions laws since they contribute to improving the expected return even in a volatile era.