Exploring ESG impact on corporate profitability: Insights from the industrials sector in Europe and USA

Over the last decades, environmental, social, and governance (ESG) factors become pivotal in organizations' strategy formations and investment decisions. These factors are essential in evaluating business sustainability and its impact on society. Increasing regulatory requirements, investors' expectations, and consumer awareness are driving companies to adopt sustainability principles, but the impact of ESG on companies' financial performance is still a widely debated topic. This article analyses whether disclosure of ESG data affects the profitability of the European and the United States of America (USA) industrial sector companies. By employing a robust linear regression model, the authors aim to identify if information disclosure of ESG's pillars (environment, social, and governance) affects companies' profitability, as assessed by EBIT (Earnings before interest and taxes). The analysis covers 2015-2022 data of the 58 USA corporations and the 124 European companies in the industrial sector. The research findings show different results for industrial sector companies in Europe and the USA. Although a positive and statistically significant relationship is observed for both regions when analyzing the environmental ESG pillar, the results of the social and governance pillar relationship with EBIT show opposite results. The article is expected to contribute to understanding how ESG (environmental, social, and governance) data disclosure impacts companies' financial performance in the European and USA industrial sectors. A key contribution to this research is the indication of region-specific effects within the model, suggesting that further investigation of regional differences and their ESG-related policies would be valuable.