Unravelling the ESG Conundrum: Using Regression Analysis to Assess the True Performance Reflected by ESG

Abstract

This study mainly focuses on the financial performance of specific firms’ stocks in relation to ESG performance. Economic performance is represented by its stock value and other financial standards, including return on asset (ROA). The ESG performance is represented by ESG scores from Eikon Refinitiv. A linear regression analysis was done on the database to explore their correlation, including all the S&P500 stocks from 126 industries. The statistical evidence shows a negative, weak relationship between the return on assets and ESG performance with the control variable of the natural log of net assets. Further analysis focuses on the individual’s decision-making regarding investing. A linear regression testing the correlation of return rates based on different periods and ESG performance is done. The results show little relationship between the short-term return and ESG performance. This study implies that maintaining high ESG performance may result in higher costs, addressing the problem of whether individuals should care about the firm’s ESG performance when investing their money in the stock market. Real investment situations can be more complex and more challenging to determine. Therefore, the result of this study can serve as a reference for individual investors.