ESG, climate vulnerability, and performance of firms in the energy value chain
Despite a substantial increase in ESG literature, the relationship between climate vulnerability and business performance has garnered little attention, especially among firms across the energy value chain. This study examines 700 firms from LSEG database for 2007-2023 to examine the association between ESG (Environmental, Social, and Governance) engagement and the performance of firms within the energy value chain, categorizing them into four types: upstream, midstream and downstream, energy services and equipment, and renewable and alternative energy. Among all models, ESG demonstrates a positive association with ROA, suggesting that energy companies with stronger ESG policies record higher financial performance than their counterparts. The social and environmental pillars in ESG exerts the most significant effect on ROA, ROE, and EPS respectively, highlighting the importance of stakeholders such as employees investors, and the wider community. The climate vulnerability parameter functions as a moderation element which shows different effects throughout the value chain. Pooled models demonstrate no overall moderation effect, yet segment analysis shows that climate vulnerability is associated with stronger ESG performance in upstream companies while it decreases performance in renewable energy companies and shows no major effect on midstream downstream or energy services equipment. Energy value chain operations require separate business and governmental programs. The comparatively weak environmental pillar results are consistent with, though do not establish, greenwashing; this evidence is indirect, and formal tests do not confirm significant differences across pillars. Investors and regulators should implement defense mechanisms which create benefits for companies that demonstrate authentic dedication to sustainability.
Despite a substantial increase in ESG literature, the relationship between climate vulnerability and business performance has garnered little attention, especially among firms across the energy…