To be socially responsible or to be profitable: is this the question for corporations in the European energy industry?

Abstract

Nowadays, companies around the world face the challenge of being socially responsible as well as profitable. The adoption of additional responsibilities integrated into corporate social responsibility (CSR) should be compatible with improvements in firms’ financial performance. This challenge is particularly relevant for companies in the energy sector, given that they are one of the most significant sources of environmental pollution. This study investigates the relationship between financial performance and the three main dimensions of CSR: environmental, social, and corporate governance, in the European energy sector. For this purpose, we use a sample of 49 oil & gas and utilities companies listed on the STOXX Europe 600 Index during the 2005-2019 period. Using fixed-effects panel data regression models, our results show that greenhouse gas emissions reductions improve energy firms’ financial performance when measured by market-based measures. Our results also demonstrate a positive synergy between employees’ corporate social responsibility training and firms’ financial performance when measured by market-based measures and a positive relationship between gender diversity on the board of directors and financial performance when measured by accounting-based measures. This study has important implications for investors and managers in the energy industry. Being aware of the sustainability policies that increase the value of energy companies can encourage investors to include CSR consciousness in their decision-making process and help energy companies’ managers align their interests with those of their shareholders.