The direct effect of ESG reporting on firm performance: Empirical evidence from global firms during the early years of the green and digital twin transition

Abstract

Whether the outcomes of the green and digital twin transition directly contributed to the firm’s financial performance (CFP) is a critical question. Environmental, social, and governance (ESG) data disclosed to the public in digital platforms demonstrates that the firms were in their digital and green twin transition. This study seeks to understand if the direct effect of ESG reporting on CFP is positive and differs between firms in more CSR-sensitive industries and firms in less CSR-sensitive industries that a firm is categorized into, during the early years of the green and digital twin transition. The study uses the 2SLS IV regression method for testing the hypotheses and a global-level dataset of 2,302 firm-year observations of 652 Fortune World’s Most Admired firms. The year between 2005 to 2011 was chosen to study as this is the early period that Bloomberg published ESG data in the Bloomberg data repository. The study finds that the ESG-CFP impact is significant and positive in the groups of industries highly sensitive to CSR but insignificant in the group of industries which is less sensitive to CSR. The paper offers managerial implications.