The relationship that CSR (ESG) has with financial distress in different industries and different geographies

: an analysis in the energy and industrial sector between Europe and Northern America

Abstract

Due to a changing world, sustainability has been receiving more and more attention due to its importance to consumer’s eyes. The Relationship between investments done towards sustainability and a firm’s probability of financial distress has never been more contradictory than today due to data misalignment and not enough transparency around the practice of sustainability reporting. This study will deep dive in this relationship, by using ESG as a proxy for sustainability and the Altman Z-Score, Current Ratio and Return on Assets as proxies of financial distress. This is a cross-sectional study that will be conducted between two sectors (Energetic sector and Industrial sector) and between two regions (European region and Northern American Region). By analyzing a time span ranging from 2012 to 2024 this study aims to understand whether ESG monetary efforts by a company, influence its financial stability and understand whether the strength and direction of this relationship changes depending on different industry characteristics and geographical context. Even though we have some strong results concerning some of the proxies used in this study, like the negative effect that ESG investments have on liquidity when measured through Current Ratio, the results provide for contrasting evidence throughout the different analysis. The Altman Z-Score appears to be less reliable in assessing the probability of financial distress in the context of ESG, while ROA mainly indicate potential short-term profitability reductions.

Date of Award	23 Apr 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ricardo Reis (Supervisor)