The Predictive Power Of ESG Scores

Abstract

This thesis examines whether ESG (Environmental, Social and Governance) scores can predict future firm growth across multiple financial metrics. Using data spanning 2013-2025, gathered from 85 different countries obtained through the WRDS database. Panel data regression models are utilized to examine the relationship between ESG performance and growth in stock market returns, and financial performance metrics over three different time horizons to evaluate future growth. Despite growing regulatory emphasis on ESG reporting and increased investor focus on sustainability metrics, the findings reveal largely insignificant relationships between ESG scores and future financial growth. While the models indicate statistically significant relationships for some dependent variables, there is a lack of economic significance across the models. These results indicate that when examining the broader market, ESG scores do not serve as reliable predictors for future financial growth. Rather, the results indicate that the relationship between sustainability performance and firm growth is more complex than linear models capture.