On the Relationship Between Financial and Sustainable Variables: Insights From Graphical Gaussian Model

Abstract

In recent years, the use of ESG information in the investment decision-making process has become increasingly important, with the consequence that more and more investors, companies, regulators and researchers are frequently interested in the possible relationships between financial performances and sustainable variables. With the aim to increase our understanding about these relationships, we use a graphical modelling approach on MSCI and Bloomberg sustainable dataset for years from 2017 to 2021. Main results show that companies with low ESG scores make generally less disclosure of sustainability data and are more volatile than companies with a high ESG score. Moreover, for all years from 2017 to 2021, investing in companies with higher ESG score does not penalize in terms of returns.

Keywords: Sustainability, Graphical Gaussian Model, Partial Correlation, ESG Disclosure