Does CSR management influence corporate financial performance?Understanding the effects of ESG factors on the oil and gas industry in the context of the energy transition

Abstract

The current situation of climate crisis is a challenge that is becoming increasingly importance for our planet. The continuous affirmations by governments and supranational organizations such as the United Nations warn that this issue must become the focus of global attention during this century. Some of the limits of the Earth have already been exceeded to such an extent that we will never know our planet as we know it today. Many issues contribute to the current climate emergency. However, one of the most important is the CO2 emission and the high negative impact that the energy industry (mainly the oil and gas industry) has on the environment. The thesis considers it appropriate to focus on this industry for two main reasons, (1) because oil and gas (O&G) are the two most consumed energy sources on our planet and contribute most to CO2 emissions(along with the coal industry) and thus, the firms working in this industry have an important social and environmental responsibility and, (2) because O&G companies should be the leading exponents in the energy transition towards sustainable energies that reduce the negative impact on the environment which, in turn, affect their performance. This thesis is framed in the necessary global energy transition. This must be carried out imminently if we want to keep our planet as we know it. However, this transition requires a significant effort to change the economic activity of O&G companies. A change in these characteristics greatly affects the financial performance of companies committed to reducing their impact on the environment and society and start modifying their activity towards exploiting fewer polluting energies. Therefore, companies need to know the impact of improving their Corporate Social Responsibility (CSR) on Corporate Financial Performance (CFP). These two related aspects constitutes the core of this thesis. To understand this relationship, the methodology focuses on a statistical approach based on modeling structural equations by partial least squares (PLS – SEM). Thanks to this technique, we will be able to know what the relationship exists between the CSR strategy (measured by the Environmental, Social and Governance factors) and the CFP (based on a market value approach) for the O&G industry globally. Once this relationship has been tested, it is needed knowing the acceptance of the energy transition by the global investors. With this aim we carry out a comparative analysis of the risk – return ratio for a set of traditional, sustainable, and renewable energy international stock market indices. The results show that the O&G industry should focus on improving its CSR strategy. In both Chapter II and Chapter III, the relationship between ESG factors and CFP is positive and significant. Specifically, an increase in environmental (E) and social (S) factors leads to an increase in the company’s value, so carrying out sustainable policies at an environmental and social level will improve financial performance. Chapter III even highlight how there is a negative moderating effect of ESG Controversies (ESGC) on the relationship between ESG factors and CFP. This tells us that companies must reduce their negative impact on the environment and social level if they want to have a positive effect between the CSR strategy and financial performance. Finally, Chapter IV states that the risk – return ratio in alternative and sustainable energy indices is less attractive at the investors level than traditional indices. The thesis findings contribute to (1) a more detailed understanding of the effect of CSR on the financial performance of the O&G industry giving advice about to manage energy transition and (2) to understand that energy transition in its current state is not yet attractive enough for financial investors according with the risk-return relationship. The conclusion of these results will allow investors, entrepreneurs, and policymakers to focus on increasing the investment attractiveness for a financially profitable energy transition.