Purpose Sustainable tourism is increasingly evaluated through environmental, social and governance (ESG) metrics, yet empirical evidence on the relationship between ESG performance and financial outcomes in the tourism sector remains mixed. Against this background, this study aims to examine the key determinants of shareholder profitability of tourism firms and then to assess whether prior-year ESG performance affects subsequent return on equity (ROE), operating profitability and market capitalization. Design/methodology/approach The ROE analysis is based on 1,618 publicly listed tourism firms over the 2020–2024 period and employs a firm and year fixed-effects model to estimate shareholder profitability as a function of operating profitability, financial leverage and an interest-and-tax-burden ratio, while also including a double-negative indicator to identify severe-loss regimes. The ESG analyses use Refinitiv scores for 363 firms with ESG coverage and rely on different models. First, the ROE fixed-effects model is extended by adding prior-year ESG scores. Subsequently, separate pooled OLS regressions relate prior-year ESG to operating profitability and market capitalization, with pillar scores used for operating profitability. Findings The results reveal that, within firms, ROE variation is primarily driven by operating profitability, leverage and severe-loss regimes. Moreover, the findings show that prior-year ESG does not predict within-firm changes in ROE. Instead, in pooled regressions, the evidence shows that prior-year ESG is positively associated with operating profitability, mainly through the environmental and social pillars, and with market capitalization. Practical implications Managers should not expect ESG improvements to translate into higher short-term ROE in listed tourism firms. However, stronger ESG performance is associated with higher operating profitability and is reflected in equity market valuations. Originality/value The study introduces a two-step framework that models ROE using an accounting-based structure and then examines ESG links separately, distinguishing within-firm dynamics from cross-sectional associations and extending the evidence to market valuation.
Silvia Angeloni (Mon,) studied this question.