The Effect of Financial Performance on ESG Performance in European listed companies: Board Characteristics as a Moderator
Omar Al-Habashneh ;
Ahmed Abdul Latiff ;
Chew Loke
Published: 2026/05/02
Abstract
This paper focuses on how the financial performance affects ESG performance among European-based listed companies, where board characteristics provide a moderating role. The study is based on Agency Theory, Stakeholder Theory and the Resource-Based View to state that financially endow firms have the resources and flexibility to undertake sustainability projects. ESG performance is measured based on Refinitiv composite and pillar scores using panel data on 600 firms operating in Europe in 2010-2023, whereas financial performance is proxied by ROA, Net Profit Margin, and the gender diversity of boards. As moderating variables, board size, independence of the board, and gender diversity amongst the boards are also looked at. The panel regressions which are fixed-effects are used to address the firm-level heterogeneity and time effects. As shown by its results, financial performance affects ESG performance to a lesser but somewhat considerable extent, especially in terms of profitability. The relationship between the financial performance and ESG engagement is enhanced by board size, whereas there is no substantial moderating role of board independence. The findings enhance the current body of research on the financial sustainability nexus by shedding light on the directional connection and emphasizing the governance circumstances within which financial strength is converted into sustainability performance.
Keywords
The Effect of Financial Performance on ESG Performance in European listed companies: Board Characteristics as a Moderator is licensed under CC BY 4.0
References
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