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

Abstract

Observable climate change and an increase in the frequency of extreme climate events undoubtedly pose challenges for society and business operations. The changes being implemented in sustainability efforts are a response to these challenges. However, the question is how these measures affect companies‘financial performance. The study aims to verify the relationship between the reporting of sustainability scores related to three aspects: environmental, social, and corporate governance (ESG). It focuses on the financial performance of companies in the Central and Eastern Europe (CEE) region in 2017-2021. The study will use panel regression and cross-sectional analysis. The results indicate a positive relationship between the disclosure of ESG activities and the financial performance of companies as measured by ROA. It was also observed that for companies operating in the financial sector, the correlation is greater, compared to companies operating in other sectors. This study contributes to the ongoing debate on the environment, society, and governance in the economy.