Corporate citizenship of heavily polluting firms: the case of oil and gas industry

The goal of the article is to empirically examine the influence of sustainability performance measured by activities of environmental, social and governance (ESG) on the accounting-based performance and valuation of oil and gas companies. This endeavor uses two samples for oil and gas firms drawn from (i) Bloomberg and (ii) Datastream. The Hausam test favors fixed effect over random effect estimation. To control for endogeneity and to check the robustness of the findings, we use IV-GMM (instrumental variables generalized method of moments). The results overwhelmingly show that ESG performance does not boost firms’ performance or value. Most of the estimated coefficients show an adverse effect of ESG practices on companies’ profitability and value. These finds are insensitive to different estimation procedures. After controlling for the endogeneity problem, the negative association is reinforced. This finding in line with the predictions of the neoclassical economic and principle-agent theories. Additionally, it is the first attempt to consider the effect of the sustainability reporting on oil and gas firms. Finally, it is the first study that uses two samples drawn from Bloomberg and Datastream, whereas results are qualitative similar using both databases.