The relationship between ESG scores and financial performance: A comparative analysis of companies in BIST 100 and European stock exchanges

With increasing concerns recently, businesses are trying to increase their sustainability-related performance to keep up with the regulations in this field, strengthen their corporate image in front of their stakeholders and not to fall behind in global competition. ESG score, which are used to measure the environmental (E), social (S) and governance(G) effects of organizations, is a comprehensive tool used for sustainability performance measurement. While there are opinions that the work carried out by businesses within the framework of sustainability concerns will cause additional costs and negatively affect financial performance, there are opinions that argue the opposite. In this study, in order to examine this two-sided view, the effect of companies' ESG scores on their financial performance has been tried to be revealed by panel data analysis method. While examining the relationship, the companies registered in the BIST 100 Sustainability Index and the companies that are traded in the stock markets in the countries with the highest foreign trade volume of Turkey in Europe and whose ESG score is regularly calculated are included in the study. As a result, while the ESG combined score, environmental and social scores affect the financial performance of the company positively in Turkey, this relationship is either negative or the existence of the relationship is statistically insignificant in Europe.