Revisiting the impact of ESG on financial performance: Empirical evidence from the Italian Stock Exchange

Purpose: This paper re-examines the overall and pillar-level impact of the environmental, social, and governance (ESG) performance on the financial performance of companies listed in the Italian Stock Exchange market. By using the seminal paper by Velte (2017)—which focused on the German context—as the base comparison, we also test the moderating role of a firm’s characteristics on that association. Design/methodology/approach: We analyze data on companies listed in the Italian Stock Exchange from 2010 to 2022, sourced from the Refinitiv Eikon platform, for a total of 650 firm-year observations. Correlation and regression analyses are conducted to evaluate the link between ESG and a series of financial performance indicators including the return on assets (ROA) and Tobin’s Q ratios. Findings: While neutral results are found for ROA, this study reveals that ESG performance has a positive impact on Tobin’s Q, in contrast to what was found by Velte (2017). However, we confirm that the governance pillar exerts the most significant effect on Tobin’s Q. Furthermore, the analysis of the firms’ characteristics as moderating factors reveals that the risk and financial leverage of a company negatively influence the relationship between ESG performance and financial performance. Originality/value: This study contributes to the empirical literature on the association between ESG performance and financial performance by re-examining the study by Velte (2017) for a different period and different context. Moreover, we test for the moderating effect of the firms’ characteristics on the relationship between ESG and financial performance.