The impact of environmental, social, and governance scores on financial performance: An analysis of selected companies listed on Borsa Istanbul

The concept of sustainability, which has attracted significant interest in the social sciences in recent years, has historical roots dating back to the 1970s. The growing attention to this topic has brought forth a series of new perspectives that influence both the academic literature and commercial practices. From a market value perspective, corporate efforts in this field have shown positive reflections on both performance and stakeholder relations. In today's world, companies are expected to align not only with financial performance criteria but also with the core dimensions of sustainability namely environmental, social, and governance (ESG) factors. However, there is no consensus in the literature regarding the impact of these criteria on firms' financial performance. In this context, the relationship between the ESG scores and financial performance of firms listed on Borsa Istanbul constitutes the main subject of this thesis. In line with this objective, the originality of the study lies in its investigation of the potential causality between the variables, which is examined through the Dumitrescu-Hurlin causality test an approach not commonly applied in prior studies. The dependent variables are return on equity (ROE) and return on assets (ROA), while the independent variables are the firms' environmental, social, and governance (ESG) scores. In the analysis, panel data regression model including pooled OLS, fixed effects model, and random effects model are employed, and the Hausman test is conducted to determine the appropriate model. As a result, a bidirectional causality is found between the firms' ESG scores and their ROA and ROE. Therefore, the findings have been evaluated comparatively using both approaches.