ISSN: 2543-6821 (online)

Journal homepage: http://ceej.wne.uw.edu.pl

Karolina Siwiec, Renata Karkowska

Relationship between ESG

and Financial Performance of
Companies in the Central and
Eastern European Region
To cite this article

Siwiec, K., Karkowska, R. (2024). Relationship between ESG and Financial

Performance of Companies in the Central and Eastern European Region.
Central European Economic Journal, 11(58), 178-199.

DOI: 10.2478/ceej-2024-0013

To link to this article: https://doi.org/10.2478/ceej-2024-0013

Open Access. © 2024 K. Siwiec, R. Karkowska, published by Sciendo.

This work is licensed under the Creative Commons Attribution 4.0 International License.
 Karolina Siwiec
University of Warsaw, Faculty of Management; Szturmowa 1/3, 02-678 Warsaw, Poland

Renata Karkowska
University of Warsaw, Faculty of Management; Szturmowa 1/3, 02-678 Warsaw, Poland
corresponding author: rkarkowska@wz.uw.edu.pl

Relationship between ESG and Financial Performance of

Companies in the Central and Eastern European Region

Abstract
Observable climate change and an increase in the frequency of extreme climate events undoubtedly pose challenges
for society and business operations. The changes being implemented in sustainability efforts are a response to these
challenges. However, the question is how these measures affect companies‘ financial performance.
The study aims to verify the relationship between the reporting of sustainability scores related to three aspects:
environmental, social, and corporate governance (ESG). It focuses on the financial performance of companies in the
Central and Eastern Europe (CEE) region in 2017-2021. The study will use panel regression and cross-sectional analysis.
The results indicate a positive relationship between the disclosure of ESG activities and the financial performance
of companies as measured by ROA. It was also observed that for companies operating in the financial sector, the
correlation is greater, compared to companies operating in other sectors. This study contributes to the ongoing debate
on the environment, society, and governance in the economy.

Keywords
ESG reporting | ESG policy | profitability | Central and Eastern Europe

JEL Codes
G21, G23, Q51, Q54

1. Introduction back as antiquity. In the 21st century, corporate social

responsibility has been increasingly combined with
the strategy of sustainable development. Discussing
The aspects of sustainability presented represent
sustainable development, special attention should be
activities that are not directly aimed at generating
paid to 2015, during which the leaders of the United
profit for the company. The study aims not so much
Nations member countries undertook an ambitious
to identify cause-and-effect relationships, but more
roadmap for transforming and reshaping the world in
to indicate the existence of correlations. Therefore,
which the needs of the present generation can be met
the purpose of this study is to verify the relationship
sustainably, with respect for the environment and the
between reporting environmental, social, and
needs of future generations. In 2016, the European
corporate governance (ESG) activities and the financial
Commission established an expert group to develop
performance of companies from different sectors of the
an overarching and detailed financing strategy, which
Central and Eastern Europe (CEE) region.
produced a report on sustainable finance in European
The concept of corporate social responsibility countries (EC, 2018). The report establishes two
(commonly used abbreviation - CSR) is not a imperatives for the financial system: to increase the
new concept emerging with economic and social commitment of finance to long-term development that
development. The first activities that could now be fosters social commitment and to improve financial
categorised as socially responsible appeared as far stability by increasing awareness of environmental,
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 180

social, and governance issues when making The answer to the basic research question raised
investment decisions. Undoubtedly, the growing a series of further questions: Do ESG activities
interest in ESG is related to the mandatory reporting positively affect the profitability of companies, or is
of non-financial data introduced by the European there a negative relationship? Does the strength of
Union in 2014 and modified in 2022. According to this relationship depend on the sector in which the
the 2014 European Union directive1, the obligation to companies operate? Do companies in the financial
report non-financial data covered public trust entities sector respond in the same way as companies
that had more than 500 employees and met one of the representing other sectors? Using a sample of 48
conditions: they had either €40 million in net revenue companies from the CEE region over the period 2017-
from sales of products and goods or €20 million in 2021, the relationship between ESG and corporate
total balance sheet assets at the end of a given fiscal performance was confirmed.
year. Assuming the above criteria, in practice, the
One of the primary findings of the research is the
obligation to report non-financial data applied only
establishment of a positive correlation between the
to the largest listed companies, banks, and insurers.
assessment of environmental, social, and governance
Under the Corporate Sustainability Reporting
initiatives and the financial outcomes of companies.
Directive published in December 20222, the scope
The cross-sectional analysis performed in this study
of companies subject to non-financial reporting was
enabled the identification of notable disparities in the
significantly expanded. In 2024, companies that have
evaluation of sustainability across enterprises from
at least 250 employees and meet one of the conditions
various countries within the Central and Eastern
indicated by the existing reporting rules (€40 million
European area. Moreover, notable disparities were
in revenue, €20 million in total assets) will be required
also noted in these evaluations, as shown by the
to report on environmental, social, and corporate
magnitude of ESG ratings among various industries.
governance activities for 2023. Regulatory solutions
The combination of this observation and the
toward ESG awareness have been followed by financial
conclusions derived from the cluster analysis allowed
investors, who, according to the European Central
for a more profound comprehension of the variation
Bank Financial Stability Review, have increased
in the reported sustainability level of conducted
ESG-friendly assets from $500 billion in 2015 to more
activities based on the sector of operation.
than $1.3 trillion in 2020 (ECB, 2020). Pressure from
regulators and owners is leading to a transformation Comparing data on ESG contributes to
of business models, so non-financial ESG metrics are practice by showing how a company’s business
also attracting the attention of managers. model and commitment to ESG practices are
changing. Therefore, the results will help investors,
Previously, the results of empirical studies on the
policymakers, regulators, managers, and auditors to
relationship between ESG activity and the value of
notice differences and adopt appropriate measures
companies are inconclusive. Some researchers find that
that could improve companies’ financial performance.
ESG activity improves the performance of companies
(Buallay, 2019; Cheng et al., 2013). In contrast, others Thus, the study should fill an undoubted research
point out that investments in ESG activities can gap in the literature. The article consists of five parts:
lead to opportunity costs associated with inefficient I. - Introduction, II. - A review of the literature on the
capital allocation (Haans et al., 2016; Heli et al., subject, III. - Description of the data and the adopted
2008). In the case of banks with low profitability, the research method, IV. - presentation of the results
discovery of the relationship between ESG activities obtained, and V. - conclusions.
and profitability achieved can be a problem between
maintaining income stability and bank insolvency.

2. Literature review
1 Directive 2014/95/EU of the European Parliament and
of the Council of October 22, 2014 amending Directive
2013/34/EU as regards disclosure of non-financial and
Today, two basic theories can provide a basis for
diversity information by certain large entities and groups considering the relationship between ESG and
2 Directive (EU) 2022/2464 of the European Parliament financial performance: stakeholder theory and trade-
and of the Council of December 14, 2022 amending off theory. These theories offer opposing predictions,
Regulation (EU) No. 537/2014, Directive 2004/109/EC, and each is supported by empirical evidence. In
Directive 2006/43/EC and Directive 2013/34/EU with
the stakeholder theory, a company has an ethical
regard to corporate sustainability reporting
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 181

obligation to maximise the value of all stakeholders. implement anti-cyclical buffers for capital (Bilgin et
Stakeholder theory argues that companies that al., 2021; Moudud-Ul-Huq, 2019).
engage in ESG activities should have greater sources
Anklesaria-Dalal and Thaker (2019) explored how
of opportunity and competitive advantage, rather
ESG factors affect the performance of Indian public
than an increase in costs and constraints (Azmi
limited companies, focusing on profitability and
et al., 2021). According to this theory, a company’s
firm value using various measures such as return on
management is obliged to maximise the long-term
asset and Tobin’s q ratio. Information derived from
value of the company, taking into account the
an analysis of 65 Indian companies listed in the NSE
competing interests of all stakeholders. Therefore,
100 ESG Index database for the years 2015 to 2017
managers should engage in ESG activities to
was examined utilising random effects panel data
strengthen relationships with various stakeholders
regression analysis. The findings of the study indicate
and promote favourable business conditions (Jo
a positive relationship between ESG performance
& Harjoto, 2011; Ruf et al., 2001). On the other
and financial performance measured by both
hand, the trade-off view treats ESG as a potentially
Tobin’s Q and ROA ratios (ang. return on assets). An
inefficient use of resources. This theory argues that
analysis by Velte (2017) also explores the relationship
managers should maximise the value of the company
between ESG performance and both accounting and
and thus refrain from charitable, socially responsible
market-based measures. The study covers a sample of
initiatives (Friedman, 1970). The relationship
companies listed on the German Prime Standard (the
between the reporting of ESG factors and the
market segment on the Frankfurt Stock Exchange
financial performance of companies is a trendy topic
represents companies voluntarily meeting more
among researchers. There are many publications
stringent transparency requirements) for the years
available on global level analysis—probably one of
2010-2014. The author employed correlation and
the most popular publications is by Friede, Busch,
regression analysis to assess potential links between
and Bassen, presenting the aggregated results of more
ESG performance and ROA, as well as Tobin’s Q.
than 2000 empirical studies (Friede et al., 2015)—and
The findings show a positive impact of ESG on ROA,
on specific countries, e.g., Germany (Velte, 2017) or
although they do not provide evidence of a relationship
India (Anklesaria-Dalal & Thaker, 2019). Moreover,
between ESG and Tobin’s Q.
there is no shortage of publications on the Polish
market and the impact of ESG reporting on measures In contrast, Kabir and Chowdhury (2022)
of an entity’s financial performance (Bek-Gaik & proved that there is no overarching consensus in
Rymkiewicz, 2015; Chojnacka & Jadanowska, 2020). the literature on the relationship between CSR and
corporate financial performance. Using Panel Vector
Conducting a meta-analysis encompassing the
Autoregression, the authors analysed 30 listed banks
results of nearly 2200 individual studies published since
in Bangladesh between 2006 and 2018 and found that
the 1970s that examined the relationship between ESG
better performance leads to higher CSR spending,
factors and companies’ financial performance, Friede,
but CSR spending does not necessarily drive better
Busch, and Bassen (2015) present by far the most
performance. Nollet, Filis, and Mitrokostas adopted
comprehensive study on the subject. Approximately
a distinct methodology, investigating both linear
90% of the studies reviewed indicate a non-negative
and nonlinear relationships between ESG scores and
relationship between ESG and companies’ financial
financial performance. The study, based on companies
performance; moreover, the vast majority of studies
listed in the S&P500 index and employing a panel
indicate that the relationship is positive. The authors
regression model, revealed that there is no statistically
also emphasise that this positive impact is constant
significant relationship between ESG reporting and
over time, which is undoubtedly a very promising
companies’ financial performance (ROA and ROC).
result. Most studies examining the correlation
Instead, the researchers highlighted the existence of
between ESG practices and the worth of companies
a U-shaped relationship between ESG reporting and
primarily concentrate on non-financial corporations
accounting measures of a company’s performance
located in emerging economies. Nevertheless, the
(Nollet et al., 2016).
level of governance, transparency, and regulatory
obligations in emerging markets is comparatively The presence of a nonlinear relationship between
lower than that in industrialised markets (Khanna ESG performance and financial performance is
& Palepu, 2000). These economies are marked by also one of the key findings from the study of 350
increased uncertainty, and banks in these markets European firms from 2014 to 2019 using a time-lagged
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 182

panel regression conducted by Bruna et al. (2022). value of firms listed on the Warsaw Stock Exchange.
Additionally, the study examined this relationship On the other hand, Chojnacka and Jadanowska focus
in the context of the transition toward non-financial on market participants’ perceptions of non-financial
reporting obligations in the European Union. Findings reporting. The results of a survey of 32 companies
suggest that mandatory disclosure is associated with listed on the WSE indicate that most entities do not
improved ESG performance and also has a positive use non-financial information to assess the condition
impact on financial performance. The authors indicate of other entities. Nearly 60% of the respondents
that mandatory disclosure may have compelled agreed with the statement that publishing non-
companies to focus more on the financial aspects of financial data can have a positive impact on building
ESG practices, which also positively influence financial relations between the company and its business
performance. Albitar et al. (2019) also investigate environment and can influence a better perception
the impact of certain changes related to reporting of the company—the image of a company sustainably
methods, analysing the effect of ESG disclosures on conducting its business. However, when asked about
the financial performance of companies listed on the motive for preparing reports with non-financial
the FTSE350 index. Since 2013, when integrated data, most companies pointed to the obligation to
reporting (IR) was introduced, companies have begun publish such data imposed by the legislator (Chojnacka
making voluntary decisions to disclose information & Jadanowska, 2020).
related to the ESG area in their reports to address the
Responsibly conducting business while taking
interests of various stakeholders. Therefore, the period
into account ESG impacts seems to be a very ethical
covered by the authors includes years both before
solution that should have a wide range of supporters.
and after the introduction of integrated reporting.
However, there are some criticisms of this strategy in
The findings from estimating ordinary least squares
the ESG discussion. Many of the factors considered
and firm-fixed effect models indicate a positive and
in ESG are viewed and analysed over the long term
significant relationship between ESG disclosure score
(especially environmental factors), while companies
and company performance, both before and after the
often focus on short-term performance. There is no
introduction of integrated reporting. Moreover, the
shortage of people questioning the benefits of ESG
authors highlight that companies voluntarily engaged
strategies. Proponents of ESG point out that it is a
in integrated reporting tend to achieve better financial
win-win strategy for both the company’s shareholders
performance.
and the broader stakeholder community, but the
Moving on to studies directly related to companies available research and analysis do not conclusively
listed on the Warsaw Stock Exchange (WSE), which confirm the existence and direction of such a
is the largest financial instruments exchange in the relationship (Morrison, 2021).
Central and Eastern Europe region. A study conducted
In recent years, a phenomenon known as
by Bek-Gaik and Rymkiewicz for companies listed on
greenwashing has become increasingly popular as an
the WSE comprising the WIG30 and mWIG40 indices
example of a marketing strategy aimed at creating a
from 2001 to 2013 (excluding financial institutions:
false impression among consumers that the product
banks and insurance companies) showed a weak
they are buying, as well as the company that supplies
correlation between corporate social responsibility
that product, is environmentally friendly and acts in
and financial variables. A positive high correlation was
an eco-friendly manner. It is important that ESG does
shown between a company’s asset size and the social
not become an instrument aimed only at improving a
reporting conducted by the company. In contrast,
company’s image among audiences that are genuinely
a positive but moderate correlation was shown
interested in the environmental impact of a company’s
between social reporting and the following variables
activities but is a tool through which companies have
characterising a company’s financial performance:
a significant impact on the environment and society.
operating profit, gross profit, net profit, and net
income (Bek-Gaik & Rymkiewicz, 2015). It is also The process of developing ratings for companies
worth mentioning two studies related to the WSE, in that employ sustainable strategies also raises doubts,
which the authors present a different approach to the particularly regarding the selection of factors
topic. On the one hand, Mikołajek-Gocejna (2024) does considered in creating these assessments. Starting
not analyse the relationship between ESG ratings and with the Polish market, Sikacz and Wołczek made a
companies’ financial performance but instead focuses comparative analysis of information from two sources:
on the relationship between ESG ratings and the Thomson Reuters Eikon and ASSET4 ESG. Based on
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 183

the data they obtained, they compared ESG scores H2: The relationship between ESG reporting and
obtained for companies included in the RESPECT company performance varies between sectors
index. ESG scores from the ASSET4 ESG database (financial and non-financial sectors).
are more favourable for companies. The researchers
emphasise that the qualification of a company as one Considering the formulated research hypotheses
operating sustainably in its business practices, and and the characteristics of the research sample, both
its inclusion in the index of companies characterised in terms of geographical dimension, the region of
as sustainable in running a business, should be Central and Eastern Europe, and temporal dimension,
unambiguous and should not raise doubts (Sikacz & the years 2017-2021 that constitute the period when
Wołczek, 2017). In addition, the authors note another the principles of non-financial reporting were already
objectionable fact—the 10th edition of the RESPECT in force, this article represents a new contribution
index under review included companies with very low to the existing literature and fills a gap related to
research concerning the CEE region. Moreover,
ESG assessment scores. In the case of the creation of the
taking into account the new reporting requirements
current WIG-ESG index of companies demonstrating
and changes resulting from the replacement of the
strong environmental, social, and governance
Non-Financial Reporting Directive (NFRD) with
practices, a two-stage evaluation of companies is used,
the Corporate Sustainability Reporting Directive
which makes it possible to assume that companies
(CSRD), which include, among others, expanding the
with low ESG scores will not be included in the index.
group of entities subject to sustainability reporting
Based on the literature reviewed and the study and the obligation to report environmental impact
of the relationship between ESG reporting and the throughout the value chain, this article may serve as
financial performance of companies, two research a response to the growing interest in examining the
hypotheses were formulated: relationship between the sustainability of business
activities and financial results.
H1: There is a positive relationship between ESG The introduced legislative changes also increase
performance and the financial performance of
the likelihood of identifying the relationship between
companies.
the reported level of sustainability of business
However, the relationship between investments activities and financial results, as well as its direction.
in sustainability and profitability is multifaceted and On the one hand, this is achieved by increasing the
contingent upon the sector in which the company number of companies implementing sustainable
operates. In financial sectors, sustainability investments reporting but also by requirements related to the
often bolster long-term profitability by mitigating reporting itself associated with the structuring of
risks associated with environmental regulations reported data, which in turn facilitates their analysis
and climate change impacts while also enhancing and comparability.
brand reputation and attracting conscious investors.
In non-financial sectors, such as manufacturing or
retail, adaptation to changing climatic and regulatory
conditions can directly affect operational costs
3. Data and methodology
and supply chain resilience, thus influencing the
profitability outcomes of sustainability investments. 3.1. Data characteristics
Therefore, the effectiveness of sustainability initiatives
in enhancing profitability is intricately linked to Verification of the research hypotheses required the
sector-specific dynamics and the company’s ability use of a database containing ESG ratings of companies.
to navigate evolving environmental and regulatory This study used the Refinitiv Eikon database and the
landscapes. For example, energy sectors face unique metrics available in it: ESG score, Environmental
challenges, where sustainability investments can lead score, Social score, and Governance score.
to immediate cost savings through energy efficiency The sector criterion (non-financial and financial
measures and renewable energy adoption but may also sectors) was chosen for selecting companies for the
require substantial upfront capital for transitioning study; companies from the Central and Eastern
from fossil fuels. Therefore, to deepen the study, we European areas were included in the study. Based on
perform cross-sectional and cluster analysis to establish the OECD division, the following countries were
the second hypothesis: included: Albania, Bulgaria, Croatia, Czech Republic,
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 184

Basic materials

Consumer Cyclicals

Consumer Non-Cyclicals

Energy

Financial

Healthcare

Industrials

Real Estate

Retails

Technology

Utilities

0 20 40 60 80

Env_score Social_score

Gov_score

Figure 1. Industry distribution of the survey sample by environmental (Env_score), governance (Gov_scor), and social
(Social_score) pillar ranking
Source: own compilation based on Refinitiv Eikon https://eikon.refinitiv.com/ (accessed 2023-05-13)

Hungary, Poland, Romania, Slovakia, Slovenia, Estonia, score among the analysed sectors. At the same time, the
Lithuania, and Latvia. The time horizon of the study is value of the index describing the corporate governance
5 years, from 2017 to 2021. With the above assumptions activities of companies in the sector remains at a low
in mind, the ESG Peers View module available in level (the third lowest value of the Governance score
Refinitiv Eikon was used and ESG score data was among the 11 sectors analysed).
downloaded for companies in the selected region and
Analysis of Figure 1 leads to two observations.
the indicated period. Taking into account the inadequate
First, the analysed sectors are characterised by high
number of ESG rating observations, the final research
inter-sectoral variability. The observed levels of
sample of 48 unique public companies, representatives
Env_score, Social_score, and Gov_score in each
of five countries: Poland, Czech Republic, Romania,
sector vary greatly. In addition, it is not possible to
Slovenia, and Hungary. The majority of which are
identify a single area (environment, social, corporate
Polish companies listed on the Warsaw Stock Exchange.
governance) that achieves the highest (or lowest)
A graphical representation of the distribution of the
values in all sectors. Secondly, intra-sectoral variation
research sample is presented in Figure 1.
is noticeable. The differences between the values of
Among the 11 sectors analysed, only in one indicators corresponding to individual ESG pillars,
case - the basic materials sector - similar levels of analysed within a single sector, are significant, which
Environmental score, Social score, and Governance indicates a kind of specialization in specific activities
score indicators are observed. The remaining undertaken by companies operating in different
sectors are characterised by wide variation in the sectors.
value of indicators corresponding to the individual
Due to the sectoral diversity of the research sample,
areas behind the ESG acronym. For example, in the
descriptive statistics were performed separately for
consumer cyclicals sector, both the Environmental
each sector (Table 1). These statistics allowed us to
score and Social score reach levels above 60, while
observe differences in ESG ratings between sectors.
the Governance score is below 40. An even greater
disparity is observed in the retail sector. This sector The lowest average ESG score value in the study
achieves the highest Environmental score and Social period is observed in the real estate sector, while
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 185

Table 1. Descriptive statistics results for the ESG_score indicator across sectors

Sector Mean Median Std. dev. Min Max

Basic Materials 44.3200 39.3000 12.1891 30.7100 72.3700

Consumer Cyclicals 55.5475 55.0650 7.8532 48.5800 63.4800

Consumer Non-Cyclicals 43.5933 44.1000 5.6499 35.1200 53.2400

Energy 56.9795 58.2200 10.9479 30.4900 74.2000

Financial 59.6758 58.9700 14.7235 31.0500 87.1500

Healthcare 58.1330 58.0200 5.8753 49.7800 68.5300

Industrials 45.6570 40.2750 11.7227 34.2400 61.1000

Real Estate 39.8300 39.8300 0.1838 39.7000 39.9600

Retails 65.6400 65.9900 9.2005 51.1300 76.5700

Technology 63.9395 67.4600 10.5718 48.9000 79.9600

Utilities 46.0243 43.3900 11.0404 32.1700 71.8400

Total 55.0022 54.7200 14.0555 30.4900 87.1500

Source: own study

the highest is in the retail sector. For 5 out of the 11 to 3 ESG aspects throughout the period from 2017 to
analysed sectors, the average values are below the 2021.
average value for the entire research sample (without Between 2017 and 2021, the average values of the
sectoral division). In the case of the basic materials ESG score for companies from selected countries varied
and industrials sectors, there is the greatest difference significantly (Table 2). Looking at the average ESG score
between the levels of the average and median. A over the 5 years examined, the lowest value is observed
lower median value than the mean indicates a greater for companies from Poland (52.87), while the highest
concentration of observations from these sectors in is for companies from Hungary (66.33), the difference
lower ESG score values. Moving on to the measure between the results obtained by these two countries is
of variability, the greatest variability is observed in just under 14 points. Analysing the average ESG scores
the financial sector, which is the largest sector in obtained over the years, an interesting case is observed
the analysed research sample (the standard deviation in Romania. It is precisely the companies from Romania
value is 14.72). For companies in this sector, ESG that presented the lowest average ESG score in 2017,
score values in the study period ranged from 31.05, reaching a level of just under 40, while for companies
being one of the lowest among the sectors studied (the from other countries, the average ESG score was at least
lowest ESG score level appears in the energy sector 51.07. At the same time, it is Romanian companies that
and is 30.49), to 87.15, which is the highest observed achieve the highest ESG score rating, reaching a level
ESG score level in the entire sample. of 77.78 in 2021, which is significantly higher than the
results obtained by companies from other countries.
Furthermore, it is noteworthy that for four countries,
there is a discernible increase in the assessment of
3.2. Cross-sectional analysis corporate activities in the ESG sphere, as measured by
To further understand the diversity in the level of the ESG score. An exception to this trend is Poland,
ESG scores achieved by the companies included in where the average ESG score in 2017 was higher than
the research sample, a cross-sectional analysis was the average values observed in the following years.
carried out, considering two dimensions: geographical Significant variation in ESG score values is
location (Table 2) and industry sector (Table 3). observed not only at the country level but also at the
The conducted analysis allowed for examining the sector level (Table 3). Except for 2017, the highest
dynamics of sustainability scores related collectively average ESG score is observed in the retail sector.
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 186

Table 2. Average value of the ESG score across countries in the years 2017-2021

Country 2017 2018 2019 2020 2021 Mean

Czech Republic 51.0733 52.4467 52.8433 59.3033 65.2600 56.1853

Poland 54.5091 52.4403 52.6769 51.6522 53.6426 52.8712

Romania 39.6650 42.3900 53.5500 71.8900 77.7767 60.0175

Slovenia 58.5300 58.1200 59.2100 57.9200 66.9700 60.1500

Hungary 63.7550 64.8900 64.3725 67.8125 70.8375 66.3335

Source: own study

Table 3. Average value of the ESG score across sectors in the years 2017-2021

Sector 2017 2018 2019 2020 2021 Mean

Basic Materials 72.3700 44.0400 43.2900 43.2217 41.2260 44.3200

Consumer Cyclicals 48.5800 49.0200 63.4800 61.1100 55.5475

Consumer Non-Cyclicals 39.5450 40.6000 43.1033 47.2967 45.8150 43.5933

Energy 58.7300 57.4150 53.4400 55.3900 60.0020 56.9795

Financial 54.1429 56.7356 60.1163 60.9841 65.2765 59.6758

Healthcare 56.3550 53.9500 55.8950 56.7150 67.7500 58.1330

Industrials 43.2300 47.7850 50.4700 43.4567 45.6570

Real Estate 39.9600 39.7000 39.8300

Retails 51.1300 65.9900 65.9800 68.5300 76.5700 65.6400

Technology 64.8425 61.9575 64.9875 63.8975 64.0125 63.9395

Utilities 46.9650 45.4575 42.6640 45.0800 50.0300 46.0243

Source: own study

Conversely, companies in the consumer non-cyclicals for each period. This analysis was designed to group
(2017-2018), utilities (2019), and real estate (2020- financial and non-financial sectors into internally
2021) sectors are found on the other end. The largest homogeneous and externally heterogeneous clusters
difference between the best and worst ESG score was in terms of their ESG scoring. Cluster analysis is
observed in 2021, amounting to nearly 37 points, a useful tool for examining relationships between
while the smallest, observed in 2019, was 23. In the sector characteristics without imposing any a priori
case of cross-sectoral analysis, a systematic increase restrictions on the probabilistic nature of the variables.
in the average ESG score rating is observed each year The results are presented in dendrograms (see Figure 2 -
from 2017 to 2021, exclusively for companies within Figure 5), while descriptive statistics for individual
the financial sector. clusters are included in Appendix 1.
Starting with the ESG score, an indicator that
assesses the aggregate activities of companies in
3.3. Cluster analysis three sectors (environmental, social, and corporate
governance), the dendrogram indicates that two main
To investigate how homogeneous (and thus indirectly clusters can be delineated. On the one hand, a cluster
integrated) or heterogeneous the sectors under study includes companies in the financial sector, and on
are, we used a clustering technique. A cluster analysis the other, a cluster includes companies operating in
based on Ward’s minimum variance technique was other sectors. The ESG score for the financial sector
conducted to identify the optimal number of clusters is highly standardised and significantly different from
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 187

Dendrogram for ESG_score cluster analysis

1500 1000
Dissimilarity measure
500 0

gy
ls

re
es

es

es
ls

ls

ls
e

gy

l
ia

ia

ia

ia

ia

ia

ia

ia
al
at

ria

ia

ia

ia

ca
lo

nc

nc

nc

nc

nc

nc

nc

nc
iti

iti

iti
er

lic
st

er

er

er
no
til

til

til
st

lth
En

na

na

na

na

na

na

na

na
lE

yc
at

at

at
U

U
du

ch

ea
Fi

Fi

Fi

Fi

Fi

Fi

Fi

Fi
m

m
-C
ea

In

Te

H
on
c

c
R

si

si

si
N
Ba

Ba

Ba
er
m
su
on
C

Figure 2. Dendrogram for ESG_score cluster analysis

Source: own study

that of the non-financial sectors. Within the cluster it is observable that the financial sector is becoming
composed of non-financial sector companies, greater more similar to the energy sector.
variation in the level of the ESG score is observed. Analysing the descriptive statistics for this
The cluster comprising financial companies (Table clustering, it is observed that companies with the
A in Appendix 1) is characterised by the highest ESG highest profitability are characterised by the lowest
score. At the same time, companies in this group have average value of Env_score. At the same time, these
the largest asset size and highest financial leverage. are companies with the lowest asset value (Table
However, their profitability (measured by ROA) is B in Appendix 1). This group includes companies
below the average for the analysed groups. from sectors such as: basic materials, consumer non-
cyclicals, financial, and technology. At the same time,
The results obtained may suggest that in the companies achieving the highest Env_score are those
research sample analysed, it is worth taking into with the highest asset value, but their profitability is
account the division into two general sectors of below the average for the analysed groups (group 2
companies’ activities: the financial sector and the non- containing companies from Consumer Non-Cyclicals
financial sector. and Financial sectors).
Analysis of the dendrogram provides an In the case of the other two indicators relating
opportunity to identify groups of sectors achieving to the evaluation of companies’ activities in the areas
similar values of the analysed indicator. In the case of social (Social_score) and corporate governance
of the Environmental score, a greater differentiation (Gov_score), more variation is apparent than in the
is observable than in the case of the general indicator case of the general indicator (ESG_score). At the
(ESG score). The obtained shape of the dendrogram same time, the relationship observed in the case of
indicates that it is not possible to determine two previous indicators persists—clusters with the highest
clusters, one of which contains only companies average Social_score (Table C), and correspondingly
operating in the financial sector. At the same time, Governance_score (Table D), are characterised by
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 188

Dendrogram for Env_score cluster analysis

2500
2000
Dissimilarity measure
1000 500
0 1500

gy
ls

ls
gy

gy

gy
s

l
ia

ia

ia

ia

ia

ia

ia

ia

ia

ia
al

al

al

al
ia

ia
lo
nc

nc

nc

nc

nc

nc

nc

nc

nc

nc
er

er

er
lic

lic

lic

lic
er

er
no

En

En

En
na

na

na

na

na

na

na

na

na

na
yc

yc

yc

yc
at

at
ch
Fi

Fi

Fi

Fi

Fi

Fi

Fi

Fi

Fi

Fi
m

m
-C

-C

-C

-C
Te
on

on

on

on
c

c
si

si
N

N
Ba

Ba
er

er

er

er
m

m
su

su

su

su
on

on

on

on
C

C
Figure 3. Dendrogram for Env_score cluster analysis
Source: own study

simultaneously having the highest asset values, the The general form of the estimated model adopted
highest leverage, and profitability below the average the form:
for the entire sample. However, these groups contain ROAit = β 0+ β1 log(esg_score)it +β2sizeit + β3 leverageit +
companies representing different sectors. Thus, β4 GDP_growthit + β5 Bank+ vit
Ward’s method, which is one of the popular methods of
hierarchical clustering, based on analysis of variance, where vit denotes the total random error, which is the
allows the determination of two clusters defined by sum of the random error and the individual effect (vit =
ui+ ϵit). A detailed description of the variables used in
the sector of companies’ activities (financial and non-
the study is presented in Table 1.
financial sectors) only in the case of analysis of the
general indicator ESG score. In the case of the analysis The study used the most recent financial data,
of indicators relating to individual ESG pillars, the including the ESG variables Social, Governance, and
results obtained are more diverse and such a clear Environment. The variables are defined according to
sectoral division is not observable, as described in the the ESG scores methodology published in May 2022 by
case of ESG score. Refinitiv (Refinitiv, 2022). This source has previously
been used in empirical studies (Buallay, 2019; Caldeira
dos Santos & Pereira, 2022; Galletta et al., 2022).
ESG_score provides a comprehensive scoring of a
3.4. Panel regression model bank’s ESG performance, considering three pillars.
Three dimensions of ESG performance are analysed:
Panel regression with FE and RE estimators was
environmental score (Environment), social score
used to verify the research hypotheses. Two tests in (Social), and good governance score (Governance).
particular help select the estimator, the first being The assessment of the Environment pillar is based on
the Breusch-Pagan test for the presence of individual three points: 1/ resource utilization, which reflects the
effects and the second the Hausman test. As a result, bank’s ability to reduce consumption of energy, water,
the lack of validity of the RE estimator was indicated. and materials and to find complementary solutions that
 C
on
su Dissimilarity measure Dissimilarity measure
m U 0 500 1000 1500 2000
er til En 0 500 1000 1500 2000
N iti er
on es gy
-C
yc

Source: own study

Source: own study
lic En
al er
s gy
Fi
Ba na U
nc til
si ia iti
c l es
m Fi
at na
er nc
ia ia
ls l
U U
Ba til til
si iti iti
c es es
m Fi
at na
er nc
ia ia
In ls l
du U
C st til
iti
on ria es
su Te ls In
m ch du
er no st
N lo ria
on gy ls
-C Fi

Figure 5. Dendrogram for Gov_score cluster analysis

yc na
lic nc

Figure 4. Dendrogram for Social_score cluster analysis

al ia
s Fi l
U na
til nc
iti ia
es H l
ea
En Ba lth
er si ca
gy c re
Fi m
n at
an er
ia
ci
al Te ls
Fi ch
n no
an lo
ci gy
al Fi
Fi na
na Ba nc
nc si ia
ia c l
l m
Fi at
n er
an ia
Dendrogram for Social_score cluster analysis

Dendrogram for Gov_score cluster analysis

ci ls
al
En
En er
er gy
H gy
ea R
lth et
Ba ai
si ca ls
c re Fi
m na
at nc
er ia
ia
ls Fi l
Fi na
n an nc
ia
ci Fi l
al
CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013

Fi na
n nc
an ia
ci l
al
189
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 190

Table 4. Model variables description

Variable Description

ROA Return on assets before taxes (expressed as a percentage)

esg_score Value of ESG Score according to Refinitiv

env_score Value of Environmental Pillar Score according to Refinitiv

social_score Value of Social Pillar Score according to Refinitiv

gov_score Value of Governance Pillar Score according to Refinitiv

size Natural logarithm of the total asset value

leverage The ratio of the total asset value to the total equity value (expressed as a percentage)

GDP_growth Annual GDP growth rate at market prices based on constant local currency (expressed as a percentage)

Bank Binary variable; takes a value of 1 if the company belongs to the financial sector, 0 otherwise

Source: own study

are greener; 2/ emission reduction, which measures the the values of the standard deviation, which is a basic
company’s effectiveness and commitment to reducing measure of variability. The highest standard deviation
emissions to the environment; 3/ innovation, which value, 23, is observed for the variable describing
reflects the bank’s ability to reduce environmental the environmental performance (env_score). On
costs through new technologies or eco-projects. the other hand, the lowest standard deviation value
The Social (Social) pillar ranking considers four characterises the esg_score variable. However, when
categories: 1/ workforce score, which measures the interpreting this value, it is important to remember
bank’s effectiveness in providing a healthy and safe the sample selection method and the imposed
workplace, maintaining job satisfaction, along with restriction on the level of the analysed variable. The
equal opportunities for its employees; 2/ human rights, average level of the natural logarithm of total assets
which refers to the company’s compliance with basic (size variable) is 8.9 with a standard deviation of 1.5.
conventions that address human rights; 3/ community Meanwhile, the average level of the leverage variable
score, which shows the bank’s commitment to describing the ratio of total assets to equity is 5.5,
business ethics and public health; and 4/ product with the standard deviation of this variable also at the
responsibility, which reflects the bank’s ability to level of 5. Analysing the level of the macroeconomic
offer quality service. Ultimately, the assessment of the variable GDP_growth in the study period 2017 - 2021,
Corporate Governance pillar (Governance) combines the average is observed to be 3.6, and the standard
effectiveness toward the application of best corporate deviation is approximately at the same level. It should
governance practices, equal treatment of shareholders, be noted that the years 2017 - 2021 included in the
and the evaluation of sustainable strategies in day-to- study cover the period of the COVID-19 pandemic,
day operations. which justifies the negative level of GDP_growth (the
Basic descriptive statistics for the dependent minimum value at -5.5).
variable and explanatory variables are presented in
Table 5.
The average ROA for companies in the sample is 4. Results
4.3%. Among the indicators describing the companies’
activities in individual ESG dimensions, the highest Based on data from 2017 to 2021, four panel models
average value is achieved by the Social score indicator. were estimated using a random effects estimator,
However, the lowest average value for companies in where the dependent variable was the ROA value.
the sample was recorded for the Environmental score. Each model included explanatory variables such
Moving on to the overall indicator, the average level as: size, leverage, and the macroeconomic variable
of ESG score in the study period is 55 and is close to GDP_growth. The models differed in the inclusion of
the level corresponding to the average value of the the binary variable Bank and the variable describing
Governance score indicator. It is also worth noting actions in the ESG area. Models 1 and 2 included the
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 191

Table 5. Descriptive statistics

Variable Obs Mean Std. dev. Min Max

ROA 207 4.3198 5.3402 -14.0000 26.5000

esg_score 207 55.0022 14.0555 30.4900 87.1500

env_score 207 48.3430 23.0429 0.0000 91.0000

social_score 207 57.1449 18.2235 13.0000 92.0000

gov_score 207 54.4638 19.5224 15.0000 95.0000

size 207 8.9057 1.5177 5.7854 11.5493

leverage 207 5.4819 4.9737 1.1500 36.5800

GDP_growth 207 3.6447 3.5834 -5.5030 8.2111

Bank 207 0.3865 0.4881 0.0000 1.0000

log_env_score 205 3.7084 0.7397 0.0000 4.5109

log_gov_score 207 3.9202 0.4190 2.7081 4.5539

log_social_score 207 3.9837 0.3744 2.5649 4.5218

log_esg_score 207 3.9738 0.2627 3.4174 4.4676

Source: own study

variable log_esg_score, which is a synthetic measure of developing market banks spanning from 2011 to
of ESG activities in three areas. Meanwhile, Models 2017 and discovered a nonlinear correlation between
3 and 4 included variables describing actions in one environmental, social, and governance factors and the
selected area, environmental (log_env_score) and overall performance of these banks. Enhancements
social (log_social_score), respectively. The binary in ESG initiatives positively impact the overall
variable Bank was added to Model 2 and Model 3. The performance of banks.
results of the study are presented in Tables 6 and 7.
Also, where an additional variable Bank was
In each of the models, the variable describing ESG applied in the models, this variable is statistically
actions is statistically significant, and the estimated significant. Its positive values indicate a difference in
coefficient takes a positive value, indicating a positive the impact of ESG reporting on companies’ financial
relationship between ESG reporting and companies’ performance between companies operating in the
financial performance measured by ROA. financial sector and companies operating in other
sectors (Hypothesis 2). For companies operating in the
The obtained results confirm the hypotheses
financial sector, a greater impact of ESG reporting on
formulated at the beginning. Based on the results
financial performance is observed.
of the conducted study, it can be concluded that for
companies from the Central and Eastern European In Model 3, the variable log_esg_score was
region included in the sample, a positive relationship replaced with a variable characterizing companies’
between ESG performance and financial performance actions only in one area – the environmental area (log_
measured by ROA is observed (Hypothesis 1). Thus, env_score). The obtained results indicate the existence
with the increase in ESG performance, the value of a statistically significant positive relationship
of ROA increases (and the higher the ROA values, between reporting actions in the environmental
the better the financial situation of the company). area and companies’ financial performance. Model 4
Not only the synthetic ESG score was a statistically was created by replacing the variable characterizing
significant variable, but also a positive relationship companies’ actions in the environmental area with a
was demonstrated between indicators describing variable describing actions in the social area (variable
actions in individual areas—environmental, social, log_social_score). For such a defined model, a positive
and companies’ financial performance. The results are relationship between reporting actions in the social
in line with Azmi et al. (2021), who analysed a dataset area and the level of ROA is also observed.
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 192

Table 6. Relationship between ESG score and performance Table 7. Relationship between ESG_ environment score
for CEE companies in 2017-2021 and ESG_social score and performance for CEE companies
in 2017-2021
Variable Model 1 Model 2
Variable Model 3 Model 4
log_esg_score 0.0507*** 0.0536***
log_env_score 0.0109**
(0.0163) (0.0162)
(0.0053)
size -0.0096*** -0.0121***
log_social_score 0.0266**
(0.0036) (0.0038)
(0.0112)
leverage -0.0046*** -0.0052***
size -0.0103** -0.0077**
(0.0009) (0.0010)
(0.0042) (0.0035)
GDP_growth 0.0035*** 0.0034***
leverage -0.0053*** -0.0045***
(0.0007) (0.0007)
(0.0010) (0.0009)
Bank 0.0203*
GDP_growth 0.0034*** 0.0034***
(0.0117)
(0.0007) (0.0007)
_cons -0.0613 -0.0548
Bank 0.0300**
(0.0578) (0.0575)
(0.0141)
Breusch-Pagan Test:
_cons 0.0985*** 0.0171
chi-bar-square 37.41 36.89
(0.0316) (0.0436)
p-value 0.0000 0.0000
Breusch-Pagan Test:
Hausman Test:
chi-bar-square 43.48 35.97
Chi-square 3.28 2.04
p-value 0.0000 0.0000
p-value 0.5127 0.7276
Hausman Test:
R 2 Within 0.2379 0.2402
Chi-square 0.80 5.26
R 2 Between 0.4042 0.4345
p-value 0.9379 0.2615
R 2 Overall 0.3360 0.3517
R 2 Within 0.2471 0.2226
Number of obs 207 207
R Between
2
0.3147 0.3925
In parentheses, the values of standard errors are provided; R Overall
2
0.3043 0.3239
*p-value<0.1; **p-value<0.05; ***p-value<0.01
Number of obs 205 207
Source: own study

Companies’ actions can have positive or negative In parentheses, the values of standard errors are provided;
*p-value<0.1; **p-value<0.05; ***p-value<0.01
impacts on the environmental, social, and corporate
Source: own study
governance (ESG) areas. At the same time, each
of the three areas behind the ESG acronym can
generate certain risks for the operation of individual identify and manage long-term risks associated with,
firms. Awareness of these issues, reporting on their for example, climate change or shifting societal
impact, and risk identification are crucial elements in expectations.
managing ESG risk within an organization. A particularly interesting area of analysis is the
The conclusions drawn from the empirical study financial sector. As shown in the study, a greater impact
can provide justification for increasing actions taken of ESG reporting on financial performance is observed
by companies in the ESG area and the importance of for companies operating in this sector compared to
reporting these actions. Apart from the reputational companies operating in other sectors. Interpreting
aspect (a company reporting ESG is perceived as these results, it is worth noting the significant role
sustainably conducting its business), companies attributed by the European Union, among others,
effectively managing the ESG area can more efficiently to the banking sector in the implementation of
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 193

sustainable finance strategies. Financial institutions attention on each factor separately (or taking into
are also entities for which managing the ESG area and account only selected specific measures such as board
ESG risk is particularly important, and which can be composition or CO2 emissions); from qualitative
largely influenced by ESG risk factors. Analysing only studies to quantitative research.
environmental risk and its two components - physical
One popular topic that has been the subject of
risk (resulting from physical phenomena, the effects of
many publications is the study of the relationship
climate change such as extreme weather events) and
between the assessment of sustainability and the
transition risk (also known as transition risk, resulting
financial performance of companies. Investigating the
from the transition to a low-carbon economy and
existence of such a relationship is the purpose of this
associated regulatory constraints and challenges), a
paper. The study carried out is quantitative, and the
direct impact on the activities of financial institutions
is noticeable. For example, in the context of physical geographical aspect was chosen as a determining factor
risk, extreme weather events can affect the value of in the selection of companies for the research sample,
real estate, which serves as collateral for transactions. limiting its scope to the Central and Eastern European
For transition risk, regulations introduced by regions. The inclusion of such a group of companies is
governments of individual countries may necessitate a new approach and allows for the analysis of a market
the suspension of high-emission activities, which may in which Poland is an important part.
result in the materialization of risks such as credit or The cross-sectional analysis conducted as part of
operational risk. this study allowed for the observation of significant
Growing social awareness and increasing differences in companies’ sustainability assessment
requirements regarding the communication of the levels from various countries in the CEE region.
impact of companies’ activities on a wide range Furthermore, significant variations, measured by ESG
of stakeholders and the environment in which score, were also observed in these assessments across
the company operates are reflected in a growing different sectors. This observation, combined with the
interest in sustainable investments. In this context, conclusions drawn from the conducted cluster analysis,
issues related to socially responsible investing (SRI) enabled a deeper understanding of the variability in the
and environmentally responsible investing (ERI) reported level of sustainability of conducted activities
are emerging. The conducted study has shown the depending on the sector of operation and provided
existence of a positive relationship between the additional justification for the hypothesis formulated
assessment of ESG actions and companies’ financial in the study. In the case of the overall assessment
performance. The existence of this relationship can, in expressed by the ESG score, it was observed that there
turn, be a positive signal for potential investors, both is a cluster composed solely of companies belonging to
those identifying with socially or environmentally the financial sector. This cluster can be attributed to
responsible investing and those who are just beginning certain characteristics that distinguish it from other
to consider companies’ activities in the ESG areas in defined clusters. It is characterised by the highest
the process of creating their investment portfolio. level of assets and the highest leverage, while the level
Regardless of the potential investor’s preferences, it is of profitability measured by ROA is lower than the
crucial for them to be more aware and to consider the average in other groups.
company holistically—through the lens of financial One of the most important conclusions of the
results but also activities in the three aforementioned
study is the demonstration of the existence of a
areas included in the ESG framework.
positive relationship between the evaluation of ESG
activities and the financial performance of companies
as measured by ROA. The results obtained, therefore,
5. Conclusions and discussion serve as another example of the existence of a non-
negative relationship between ESG and the financial
performance of companies, a finding observed by
ESG-related topics represent a very interesting area
Friede et al. (2015) in their comprehensive review of
of research. These studies can take a variety of forms
studies on this subject matter.
and dimensions: from studies analysing the activities
of single entities in detail to studies spanning many Moving specifically to the relationship between
countries or sectors; from studies analysing activities ESG and the level of ROA, an analogous relationship
defined collectively as ESG to studies focusing was identified for companies from India (Anklesaria-
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 194

Dalal & Thaker, 2019). Concurrently, a related The survey results can help companies make ESG
observation was made in a market significantly decisions. In addition, regulators can see more clearly
closer to the Central and Eastern European region’s which components of the strategy need to improve
companies. In this study of German firms, Velte (2017) operations to achieve and maintain higher financial
revealed a positive link between ESG factors and the performance with a commitment to sustainability.
financial performance measured by ROA.
Showing a positive relationship between ESG
Moreover, the existence of a positive relationship reporting and companies’ financial performance can
between the ESG rating of companies’ activities in be an incentive for both investors and companies. On
single areas, environmental, social, and financial the one hand, investors becoming more aware can
performance, was also identified. In two of the four expect companies to take concrete actions in the areas
estimated models, a binary variable was added to of ESG. On the other hand, companies are noticing
indicate whether the company operates in the financial that although these activities are not, by definition,
area or has business activities in another sector. aimed at generating profit, they can bring tangible
Conclusions from the models thus defined indicate a benefits.
difference in the correlation between ESG scores and
Examining the relationship between a company’s
companies’ financial performance occurring between
sustainability performance and its outcomes, defined
sectors. For companies operating in the financial
in various ways, undoubtedly constitutes and will
sector, a greater relationship between ESG rating and
continue to constitute, an intriguing area of research
financial performance is observed.
that can be pursued in various directions. New research
When analysing the results obtained, one should directions will also be shaped by changes introduced
keep in mind the potential limitations of the sample in the reporting methods concerning both ESG issues
selection. Currently, the number of companies from and financial performance measures. For instance,
the CEE region for which the Refinitiv ESG score Maruszewska & Tuszkiewicz (2024) highlight a
was available is not large, so it will undoubtedly change resulting from the upcoming introduction
be interesting to conduct a similar survey in the of Management Performance Measures (MPM)
coming years when the EU regulations on mandatory definitions into the International Financial Reporting
non-financial reporting will cover more and more Standards. According to this definition, MPMs are
companies. In addition, the survey was based on only only measures derived from subtracting incomes and
one ESG rating, provided by Refinitiv Eikon. The expenditures, and thus according to the definition, the
study did not provide clear guidance on which ESG ROA indicator is not an MPM. The author points out
measures are most effective for companies; however, that an entirely new research direction could be the
it did show that intensifying sustainability policies analysis of the relationship between a set of MPMs and
does not reduce profitability and can therefore deliver a company’s valuation, concurrently expanding this
measurable profits. In addition, certain ESG activities, analysis to include the examination of the relationship
such as environmentally friendly investments, may between a set of MPMs and a company’s ESG rating.
have secondary benefits. In turn, these secondary
Increasing interest in ESG topics and conducting
benefits may include improving the quality of life of a
activities in this area has a positive impact on various
society or making it a more attractive place for foreign
stakeholder groups, both internal and external, and
direct investment in the long term. When comparing
increases awareness that companies should not be
this with the outcomes observed by Kwiatkowski et al.
analysed in isolation from the environment in which
(2023), who explored the impact of formal institutional
they operate. Companies are part of the broader
environments on the effectiveness of regional cluster
community and part of the environment. They affect
policies in 20 Polish clusters and found that cluster
both directly and indirectly. It is worth noting that
coordinators are often institutions from the business
starting in 2024, the nomenclature of ESG reporting
environment, one might suggest that such a role
will change - by the CSRD, the new reporting format
could be taken up by companies excelling in ESG
will be sustainability reporting, rather than non-
practices. Furthermore, improving the quality of life
financial reporting, as before.
for communities can serve as an example of caring
for a broad group of stakeholders, thus perfectly
embodying the stakeholder theory (Azmi et al., 2021;
Jo & Harjoto, 2011; Ruf et al., 2001).
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 195

References przeprowadzonego wśród spółek notowanych na

Giełdzie Papierów Wartościowych w Warszawie.
Albitar, K., Hussainey, K., Kolade, N., & Gerged, A. Zeszyty Teoretyczne Rachunkowości, 106(162), 45–65.
(2019). ESG Disclosure and Firm Performance Before Friede, G., Busch, T., & Bassen, A. (2015). ESG
and After IR: The Moderating Role of Governance And Financial Performance: Aggregated Evidence
Mechanisms. International Journal of Accounting from more than 2000 Empirical Studies. Journal of
and Information Management, 28, 1–21. https://doi. Sustainable Finance & Investment, 5(4), 210–233. https://
org/10.1108/IJAIM-09-2019-0108 doi.org/10.1080/20430795.2015.1118917
Anklesaria-Dalal, K., & Thaker, N. (2019). ESG Friedman, M. (1970). A Theoretical Framework
and Corporate Financial Performance: A Panel for Monetary Analysis. Journal of Political Economy,
Study of Indian Companies. IUP Journal of Corporate 78(2), 193–238. https://doi.org/10.1086/259623
Governance, 18, 44–59.
Galletta, S., Mazzù, S., & Naciti, V. (2022). A
Azmi, W., Hassan, M. K., Houston, R., & Karim, Bibliometric Analysis of ESG Performance in the
M. S. (2021). ESG Activities and Banking Performance: Banking Industry: From the Current Status to
International Evidence from Emerging Economies.
Future Directions. Research in International Business
Journal of International Financial Markets, Institutions
and Finance, 62(October 2021), 101684. https://doi.
and Money, 70, 101277. https://doi.org/10.1016/j.
org/10.1016/j.ribaf.2022.101684
intfin.2020.101277
Haans, R. F. J., Pieters, C., & He, Z. L. (2016).
Bek-Gaik, B., & Rymkiewicz, B. (2015). Wpływ
Thinking About U: Theorizing and Testing U- and
CSR na finansowe miary dokonań jednostek. Zeszyty
Naukowe Uniwersytetu Szczecińskiego. Finanse, Rynki Inverted U-Shaped Relationships in Strategy Research.
Finansowe, Ubezpieczenia, nr 73 Ryzyko, zarządzanie, Strategic Management Journal, 37(7), 1177–1195. https://
wartość, 151–165. doi.org/10.1002/SMJ.2399

Bilgin, M. H., Danisman, G. O., Demir, E., & Tarazi, Heli, W., Jaepil, C., & Jiatao, L. (2008). Too
A. (2021). Bank Credit in Uncertain Times: Islamic Little or Too Much? Untangling the Relationship
Vs. Conventional Banks. Finance Research Letters, 39, Between Corporate Philanthropy and Firm Financial
101563. https://doi.org/10.1016/j.frl.2020.101563 Performance. Organization Science, 19(1), 143–159.
https://doi.org/10.1287/ORSC.1070.0271
Bruna, M. G., Loprevite, S., Raucci, D., Ricca, B.,
& Rupo, D. (2022). Investigating the Marginal Impact Jo, H., & Harjoto, M. A. (2011). Corporate
of ESG Results on Corporate Financial Performance. Governance and Firm Value: The Impact of Corporate
Finance Research Letters, 47, 102828. https://doi. Social Responsibility. Journal of Business Ethics 2011
org/10.1016/j.frl.2022.102828 103:3, 103(3), 351–383. https://doi.org/10.1007/S10551-
011-0869-Y
Buallay, A. (2019). Is Sustainability Reporting
(ESG) Associated with Performance? Evidence Kabir, M. A., & Chowdhury, S. S. (2022). Empirical
From the European Banking Sector. Management of Analysis of The Corporate Social Responsibility
Environmental Quality: An International Journal, 30(1), and Financial Performance Causal Nexus: Evidence
98–115. https://doi.org/10.1108/MEQ-12-2017-0149 From The Banking Sector of Bangladesh. Asia
Caldeira dos Santos, M., & Pereira, F. H. (2022). Pacific Management Review. https://doi.org/10.1016/j.
ESG Performance Scoring Method to Support apmrv.2022.01.003
Responsible Investments in Port Operations. Case Khanna, T., & Palepu, K. (2000). Emerging Market
Studies on Transport Policy, 10(1), 664–673. https://doi. Business Groups, Foreign Intermediaries, and Corporate
org/10.1016/j.cstp.2022.01.027 Governance (pp. 265–294) [NBER Chapters]. National
Cheng, Beiting, I., Ioannis, Serafeim, G. (2013). Bureau of Economic Research, Inc. https://econpapers.
Corporate Social Responsibility and Access to Finance. repec.org/bookchap/nbrnberch/9012.htm
Strategic Management Journal. https://doi.org/10.1002/ Kwiatkowski, T., Micek, G., & Łapczyński, M.
smj.2131 (2023). Perceived Social Capital and Institutional
Chojnacka, E., & Jadanowska, E. (2020). Environment‘s Impact on the Success of Regional
Użyteczność i korzyści ujawniania informacji Cluster Policies. Central European Economic Journal,
niefinansowych – wyniki badania ankietowego 10(57), 198–218. https://doi.org/10.2478/ceej-2023-0012
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 196

Maruszewska, E. W., & Tuszkiewicz, M. A. (2024).

Boundaries of Management Performance Measures
(MPMs) Disclosed in Primary Financial Statements
Prepared in Accordance with New Standard Planned
to Supersede IAS 1. Central European Economic Journal,
11(58), 1–16. https://doi.org/10.2478/ceej-2024-0001
Mikołajek-Gocejna, M. (2024). The Relationship
Between ESG Rating and Firm Value – Evidence from
Companies Listed in Poland. Central European Economic
Journal. https://doi.org/10.2478/ceej-2024-0011
Morrison, R. (2021). Environmental, Social, and
Governance Theory: Defusing a Major Threat to
Shareholder Rights. SSRN Electronic Journal. https://
doi.org/10.2139/ssrn.3845709
Moudud-Ul-Huq, S. (2019). Banks’ Capital Buffers,
Risk, and Efficiency in Emerging Economies: Are
They Counter-Cyclical? Eurasian Economic Review, 9(4),
467–492. https://doi.org/10.1007/s40822-018-0121-5
Nollet, J., Filis, G., & Mitrokostas, E. (2016).
Corporate Social Responsibility and Financial
Performance: A Non-Linear and Disaggregated
Approach. Economic Modelling, 52, 400–407. https://
doi.org/10.1016/j.econmod.2015.09.019
Refinitiv. (2022). Environmental, Social and
Governance (ESG) Scores from Refinitiv. https://www.
lseg.com/content/dam/marketing/en_us/documents/
methodology/refinitiv-esg-scores-methodology.pdf
Ruf, B. M., Muralidhar, K., Brown, R. M., Janney,
J. J., & Paul, K. (2001). An Empirical Investigation of
the Relationship Between Change in Corporate Social
Performance and Financial Performance: A Stakeholder
Theory Perspective. Journal of Business Ethics, 32(2),
143–156. https://doi.org/10.1023/A:1010786912118
Sikacz, H., & Wołczek, P. (2017). Analiza ESG
spółek z indeksu RESPECT – podsumowanie badań.
Zeszyty Naukowe SGGW, Polityki Europejskie, Finanse i
Marketing, 18(67), 170–180. https://doi.org/10.22630/
PEFIM.2017.18.67.32
Velte, P. (2017). Does ESG Performance Have an
Impact on Financial Performance? Evidence from
Germany. Journal of Global Responsibility, 8(2), 169–178.
https://doi.org/10.1108/JGR-11-2016-0029
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 197

Appendix 1

Table A. Descriptive statistics of ESG score for CEE companies

Number of group Mean Median StandDev Min Max

#1
ROA 0.04 0.03 0.05 -0.08 0.19
esg_score 38.23 39.09 3.92 30.49 43.81
size 7.95 7.49 1.24 5.79 10.76
leverage 3.33 2.46 2.53 1.32 11.32
#2
ROA 0.06 0.06 0.06 -0.13 0.27
esg_score 53.35 54.18 5.13 44.36 62.37
size 8.79 9.06 1.45 5.80 11.52
leverage 4.97 2.53 3.86 1.15 15.52
#3
ROA 0.03 0.02 0.04 -0.14 0.17
esg_score 71.82 71.73 6.12 63.10 87.15
size 9.89 10.05 1.22 7.49 11.55
leverage 8.02 7.80 6.56 1.25 36.58
Total
ROA 0.04 0.03 0.05 -0.14 0.27
esg_score 55.00 54.72 14.06 30.49 87.15
size 8.91 9.06 1.52 5.79 11.55
leverage 5.48 2.65 4.97 1.15 36.58

Source: own study

Table B. Descriptive statistics of ESG Environmental score for CEE companies

Number of group Mean Median StandDev Min Max

#1
ROA 0.05 0.03 0.05 -0.06 0.19
env_score 23.61 25.00 10.97 0.00 39.00
size 8.27 7.68 1.47 5.79 11.42
leverage 4.59 2.53 3.81 1.15 21.75
#2
ROA 0.03 0.02 0.04 -0.14 0.10
env_score 76.29 74.00 6.54 67.00 91.00
size 9.53 9.76 1.19 7.29 11.35
leverage 6.94 7.03 5.59 1.44 36.58
#3
ROA 0.05 0.04 0.06 -0.13 0.27
env_score 51.94 50.00 7.23 41.00 65.00
size 9.08 9.06 1.57 6.22 11.55
 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 198

Continued
Table B. Descriptive statistics of ESG Environmental score for CEE companies

Number of group Mean Median StandDev Min Max

leverage 5.24 2.36 5.33 1.25 23.54
Total
ROA 0.04 0.03 0.05 -0.14 0.27
env_score 48.34 48.00 23.04 0.00 91.00
size 8.91 9.06 1.52 5.79 11.55
leverage 5.48 2.65 4.97 1.15 36.58

Source: own study

Table C. Descriptive statistics of ESG Social score for CEE companies

Number of group Mean Median StandDev Min Max

#1

ROA 0.06 0.04 0.07 -0.08 0.27

social_score 42.41 41.00 4.80 34.00 50.00

size 8.36 8.99 1.54 5.79 10.77

leverage 3.83 2.16 3.34 1.31 11.54

#2

ROA 0.02 0.03 0.03 -0.05 0.09

social_score 26.48 27.00 4.15 13.00 32.00

size 7.92 7.64 1.06 6.22 9.90

leverage 3.82 2.54 2.75 2.10 11.32

#3

ROA 0.05 0.03 0.05 -0.13 0.17

social_score 63.92 64.00 5.67 52.00 73.00

size 9.18 9.37 1.47 6.51 11.42

leverage 6.00 4.61 4.65 1.15 22.01

#4

ROA 0.03 0.02 0.04 -0.14 0.14

social_score 79.60 78.00 5.11 74.00 92.00

size 9.62 9.67 1.32 6.88 11.55

leverage 7.38 7.03 7.00 1.25 36.58

Total

ROA 0.04 0.03 0.05 -0.14 0.27

social_score 57.14 61.00 18.22 13.00 92.00

size 8.91 9.06 1.52 5.79 11.55

leverage 5.48 2.65 4.97 1.15 36.58

Source: own study

 CEEJ • 11(58) • 2024 • pp. 178-199 • ISSN 2543-6821 • DOI: 10.2478/ceej-2024-0013 199

Table D. Descriptive statistics of ESG Governance score for CEE companies

Number of group Mean Median StandDev Min Max

#1

ROA 0.04 0.04 0.06 -0.14 0.17

gov_score 32.41 34.00 8.45 15.00 45.00

size 8.55 8.57 1.36 5.89 11.37

leverage 4.82 2.58 5.11 1.31 36.58

#2

ROA 0.05 0.05 0.05 -0.06 0.19

gov_score 52.82 52.50 3.81 47.00 59.00

size 8.62 8.34 1.57 5.79 11.55

leverage 3.94 2.25 3.30 1.17 11.39

#3

ROA 0.03 0.02 0.04 -0.05 0.15

gov_score 80.68 79.00 6.24 73.00 95.00

size 9.74 9.93 1.44 6.96 11.53

leverage 8.46 8.25 5.99 1.33 23.54

#4

ROA 0.05 0.02 0.06 -0.00 0.27

gov_score 66.24 66.00 3.09 61.00 71.00

size 8.97 9.19 1.51 5.80 11.04

leverage 5.32 2.51 3.97 1.15 14.90

Total

ROA 0.04 0.03 0.05 -0.14 0.27

gov_score 54.46 55.00 19.52 15.00 95.00

size 8.91 9.06 1.52 5.79 11.55

leverage 5.48 2.65 4.97 1.15 36.58

Source: own study