Identifying ESG Correlation with Corporate Financial Performance: Research on Exploration & Production Oil and Gas Companies

2015 dissertation for MSc Finance and Risk. Selected by academic staff as a good example of a masters level dissertation. Purpose: The research paper purpose is to investigate the ESG correlation with financial performance from operational accounting and intrinsic firm value perspective. The study throroughly concentrates on E&P companies in UK, Canada and US because there is a deficiency of studies analysing single industry or sector. Moreover, the study is going to add a particular value to investors and stakeholders involved in the E&P companies. Critical Literature Review: The literature review examines individually E, S, and G factors in prior research papers in order to establish a foundation to construct the current study thesis with particular focus on E-score because of its pivotal impact on E&P sector. Methodology: An Ordinary Least Squares (OLS) panel data method is used in Eviews8, econometric software, to test the ESG factors and financial performance correlation. In addition, the companies' financial data is collected via the Bloomberg Professional Service Terminal while the ESG data via Thomson Reuters DataStream. Data Analysis: The empirical framework is divided into two models, which consist of 73 and 34 E&P companies over the period from 2009 to 2014. The first model aims to identify prior studies suggested variables as irrelevant for the E&P sector. Whereas, the second model purpose is to enhance the first model equation and to supplement unique determinants for the E&P companies. Findings: The first model results prove a gap in the previous studies by identifying weak explanatory power in the variables. However the second model signifies an enhanced model with better-integrated variables. In result, the operating performance demonstrates a positive correlation with E-score while firm value indicates a negative correlation, which is inconsistent with the majority of research paper findings