Abstract:

This study explores the non-linear and sector-specific relationship between ESG performance and financial performance measured through ROA and EPS. Drawing on stakeholder and legitimacy theory, the study applies quantile regression to uncover distributional heterogeneity across performance levels and sectors and uses a DID approach to evaluate the causal effect of the UK’s 2019 SECR regulation. Results reveal a convex U-shaped relationship between ESG performance and ROA, suggesting that profitability initially declines with early ESG adoption but rises beyond a critical threshold as ESG practices become more mature and strategically embedded. For EPS, a similar U-shaped trend is observed although weaker and statistically insignificant at higher quantiles indicating limited short-term shareholder gains for underperforming firms and a potential inflection point among top performers. Sectoral differences underscore that ESG effects are context-dependent and not universally positive. The DID analysis reveals that SECR improved ROA with no effect on EPS, reflecting regulatory asymmetries.

Please choose your submission type: Full Paper

Primary Track: Sustainable and Responsible Business

Keywords: responsible business

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Ms. Sarah Ifeanyichukwu