Does the world need more traditional energy? A comparative analysis of ESG activities, free cash flow, and capital market implications

Huijing Li, Danjue Clancey-Shang, Chengbo Fu and Tianze Li

International Review of Financial Analysis, 2025, vol. 99, issue C

Abstract: In this paper, we examine the ESG performance of traditional energy firms relative to their non-energy counterparts. Our findings reveal that energy firms outperform non-energy firms in ESG metrics. Within the energy sector, firms in the USA and Europe lead in ESG performance, while those in Japan, Australia, India, and China trail. These results hold even after controlling for other firm characteristics and remain robust to Propensity Score Matching (PSM) analysis. Additionally, we identify financial flexibility as a key driver of this relationship. Specifically, the positive association between being an energy firm and higher ESG performance is more pronounced in firms with greater net cash flow.

Keywords: ESG; Energy firms; Net cash flow; Propensity score matching; Sustainability (search for similar items in EconPapers)
JEL-codes: G30 M14 Q40 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:99:y:2025:i:c:s1057521925000067

DOI: 10.1016/j.irfa.2025.103919

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