ESG Scores and Performance in Brazilian Public Companies

Abstract

Environmental, social, and corporate governance (ESG) practices are gaining prominence globally and in Brazil, as it is home to invaluable environmental assets. This article presents new evidence on the impact of ESG scores on publicly traded Brazilian companies, contributing to the growing body of literature that examines the relationship between ESG practices and corporate financial performance, while addressing a gap in the analysis of the Brazilian market, the eighth-largest economy globally. By testing two main hypotheses—that ESG scores are negatively associated with the cost of capital and positively associated with return on assets—this study aimed to advance both our theoretical and empirical understanding of how sustainable practices influence financial performance within the Brazilian context. Using quantitative methods with Refinitiv data and scores from 2018 to 2022, panel regression analysis, and quantile regression, with fixed effects, this study revealed significant connections between high ESG scores and lower cost of capital, in addition to better operating performance. When the scores were evaluated separately, only the impact of environmental performance was statistically significant in the cost of capital. The environmental, social, and governance scores were statistically significant and positive for operational performance.