Exploring the asymmetric impact of sustainability reporting on financial performance in the utilities sector: A longitudinal comparative analysis

Abstract

This paper explores the longitudinal impact of Environmental, Social, and Governance (ESG) scores on company performance, considering firm value and financial accounting performance. Using a longitudinal fuzzy set qualitative comparative analysis (fsQCA) on a sample of 185 global listed companies in the utilities sector from 2018 to 2021, we demonstrate that various combinations of sub-dimensions of ESG activities determine the level of financial performance (FP). We use two accounting metrics and two market-based indicators and identify different configurations across time from the perspective of each measure. According to the accounting-based indicators, a good performance on the S pillar and an absence on the E pillar generate high financial outcomes across time, regardless of their performance on the G pillar. However, from the market perspective, both the E and S pillars are determinants for generating high FP, indicating that the three dimensions of ESG do not need to exist simultaneously to lead to high financial outcomes. This research contributes to the understanding of needed improvements to sector and industry-specific analyses focusing on the utilities sector, an environmentally sensitive but scarcely studied sector. The study specifically sheds light on how publicly traded utility companies should strategically combine efforts in the E, S, and G pillars based on whether their focus is on short-term profits or, conversely, long-term profits. Additionally, it expands the application of longitudinal fsQCA to research related to sustainability.

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