1. Introduction

Sustainability is now more than ever a business imperative. Many companies are struggling to deeply diving into the sustainability landscape, and they constantly try to face the sustainability challenges and business opportunities [1].

Sustainable practices are a growing phenomenon around the world and there is increasing research on the correlation between ESG (Environmental, Social and Governance) and corporate financial performance (FP) [2–5].

In particular, ESG factors have become extremely important because they allow a company’s ESG performance to be measured accurately and on the basis of standardized and shared parameters [4]. In 2019, ESG factors are recognized by the financial world as “key leverages” to achieve the goal of climate neutrality by 2050: the European “Green Deal”. ESGs reflect sustainability practices and can report a firm’s progress in implementing the Sustainable Development Goals (SDGs) [6]. Many studies in the literature show that sustainable investments, in addition to protecting the environment and society, offer an opportunity to achieve financial success [7]. In particular, it has been conducted a detailed study on both book and market performance, proving that they are positively impacted by ESG responsibilities [2] - see also the ESG risk-firm value relationship by [8]. Other researchers [9–12] proved that responsible behaviour improves firms’ performance, value and risk, under the framework of the stakeholder theory. However, contrasting results are reported in literature by another wave of researchers [5,13–18] that show how ESG and corporate financial performance are linked by a negative relationship, under the neoclassical theoretical framework. Hence, this proves that extant literature indicates two gaps consisting of inconclusive results on the ESG-performance relationship as well as the lack of relevant sector-specific studies [19–23].

In parallel with the increasing focus on ESG, digitalization has reshaped our world in profound and different ways, also revolutionizing the way companies do business. Digital transformation can reduce business costs and trade credit financing [24,25] and has positive effects on firm innovation and performance [26,27], despite some research [2] showed that digitalization alone is not able to impact significantly on corporate financial performance. The development of digital technology can reduce the transaction cost and the cost to obtain information [28]. With the application of digital technology in finance, corporate financing has been greatly facilitated [29]. Also, according to existing research [30,31] the sustainable development of businesses is positively impacted by digitalization. Digitalization opens to a more articulated investigation on the ESG-corporate financial performance relationship [22]. In fact, digitalization can play a key role in integrating ESG aspects within organizations, as digital technologies can be used to monitor and assess environmental impact, improve social practices, facilitate transparent and more effective governance [32], and promote corporate responsibility and fulfilment of social obligations [33]. On the other side, digitalization is found to have a significant positive impact on FP, that is further strengthened by ESG, in recent research on Korean listed firms [26]. However [26], conducted an in-depth analysis also on the different moderating role played by each ESG pillar, thus, revealing the intertwined and complex dynamics involving digitalization, single ESG pillars and FP. In this context, the development of digital finance can significantly improve corporate ESG performance, and especially environmental performance [34]. The adoption of ESG criteria and the integration of digital technologies can offer significant and synergistical opportunities for companies, enabling them to create long-term value, mitigate risks, and satisfy stakeholder expectations, thus, improving their overall performance [2,26]. Companies need to be aware of the environmental and social impacts of their activities and harness the potential of digital technologies to address the challenges and seize the opportunities offered by an increasingly sustainable and digital economy.

However, extant literature shows that digitalization poses a plethora of risks and challenges [35,36] related to distrust on the use of consumers’ data [37] as well as to its diffusion within developing countries [2].

Moreover, contrasting results are reported in literature not only about the digitalization-financial performance relationship, but also related to whether digitalization impacts the same way on firms located in developed or developing countries [2,37].

Hence, we identify and address the following gaps in literature: the hitherto under investigated link between ESG and FP, still missing a multi-country analysis and the focus on single ESG pillars; the role played by digitalization within the ESG-FP relationship.

Finally, we also identify the lack of a sufficient number of sectoral studies about the ESG-FP relationship and the role of digitalization. Beyond [38], proving the lack of significant ESG-FP relationships in Polish energy companies, and [39], that find positive effects of ESG on some performance indicators (i.e., return on equity (ROE), return on assets (ROA)) and negative on others (i.e., Tobin’s Q), the literature still misses a comprehensive understanding of the ongoing digitalization-ESG-FP dynamics in the Energy sector. Another contribution by [40] proves the very weak link among ESG and FP. Moreover, to the best of our knowledge, the Utilities sector is even less investigated, with [41] that warns about the potential reputational risks associated with the misalignment among ESG initiatives, performance and the quality of sustainability reporting. The need for creating value in the Energy and Utilities sectors via developing a good reputation among stakeholders and increasing innovation (including through digitalization) is also postulated by [42–44]. Overall, literature depicts a very fragmented and inconclusive view on the topic and shows the need to investigate it with sectoral studies considering their peculiarities. In fact, Energy and Utilities sectors are both intertwined to each other, and, above all, they are environmentally sensitive due to their impact on social and environmental issues [39,41]. Moreover, investigating and understanding such dynamics in the Energy and Utilities sector has not only a practical societal and environmental impact in the stakeholders’ view, but brings also a managerial interest to the firm, since those sectors are among the most connected to both the social and environmental challenges addressed by the ESG initiatives. Thus, investigating their efforts in terms of ESG and digital transformation, and how firms and the market react to such initiatives is key to contribute to the understanding of the digitalization-ESG-FP dynamics in the Energy and Utilities sectors.

The aim of the paper is twofold: first, we investigate the relationship between ESG factors and FP; second, we investigate the role of digitalization, and we try to understand how digitalization can influence that relationship, also discussing our findings against the inconclusive results in the literature. We contribute to the literature by studying the moderating role of investments in digital technologies in the context of sustainability, to understand whether digitalization can accelerate the impact of ESG on corporate profitability. In detail, we contribute by means of increasing the granularity of the statistical analysis compared to previous studies [2], since we focus not only on the overall ESG score, but also on each single pillar (i.e., E, S and G). This is both a methodological contribution and a literature one. As for the theory, we enrich the theoretical understanding of the investigated relationships under the lenses of the instrumental stakeholder theory (IST), also providing an extended version including a moderator variable like digitalization. Finally, our findings contribute to the ongoing discussion on the role of digitalization between ESG and corporate financial performance by showing that in a multi-country and multi-continent context there is no significant positive moderation of digitalization overall, whilst some specific pillars impact negatively on some financial variables. This result is derived mainly from developed countries (i.e., Europe, Oceania and America) and is in contrasts with the moderating role of digitalization in Indonesian firms [2].

The present paper draws from IST to address the following research questions:

The paper is organized as follows: Section 2 presents the literature review. Section 3 describes the research methodology and the data set used. Section 4 presents and discusses the empirical results. Finally, section 5 concludes the paper, highlighting the implications and limitations of the study as well as the future research directions.

2. Literature review

3. Materials and methods

In this section, the empirical research is described. We illustrate the sample and data used, the main variables and the methodology.

3.1. Sample and data

The panel covered by our study consists of a sample of listed companies belonging to the Energy and Utilities sectors observed from the year 2019 to 2021. We chose the Energy sector because it is an environmentally sensitive sector and, in addition, companies belonging to this sector are under intense social and environmental monitoring. Moreover, other empirical studies, have shown a weak link between ESG scores in the Energy sector and returns [40]. The Utilities sector is also very sensitive to ESG factors because there could be potential misalignments between performance of ESG factors and quality of sustainability reporting, and this is particularly relevant for the Utilities sector because of the existence of reputational risks associated with their activities [41]. In particular, the sample consists of 149 companies belonging to the Utilities sector and 154 belonging to the Energy sector from around the world. Our data set includes financial indicators closely related to the corporate profitability, as ROA, ROE, Revenues and Earnings before interests, taxes, depreciation, and amortization (EBITDA) margin, sustainability-based indicators, the ESG scores and the three pillars (E, S, G) considered separately. In addition, we use as a proxy of digitalization, an indicator that measures whether the company supports the SDG 9 Industry, Innovation, and Infrastructure. The financial, sustainability and digitalization data are collected from Refinitiv Eikon ASSET 4, a database widely used in the financial industry [40], and one of the most reliable and accurate sources of ESG information [102].

The Appendix includes the table with part of the data considered (Table 1.A).

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Table 1. Descriptive statistics and pairwise correlations (source: authors’ elaboration).

https://doi.org/10.1371/journal.pone.0314078.t001

The results of the descriptive statistics are presented in Table 1.

3.3. Control variables

Referring to previous studies, we selected company size and financial leverage as control variables. Firm size (Size) is an essential control variable to be considered because the larger the company is, the more sensitive the enterprise may be to improve its FP. Therefore, for companies of significantly different sizes, their willingness to manage ESG performance and the economic results can be significantly different [1]. Financial leverage (Lev) provides insight into a company’s capital structure and was calculated as the ratio of total debt to total equity. In addition, we include country and sector dummy variables to avoid common endogeneity and control for both sector and country features.

The complete set of variables used in this study can be found in Table 2.

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Table 2. Study variables (source: authors’ elaboration).

https://doi.org/10.1371/journal.pone.0314078.t002

4. Results and discussion

Strong multicollinearity among the independent variables in the model can affect the reliability of the results of the mediation effect model analysis [1]. To test multicollinearity, statistical methods such as Pearson’s correlation test and variance inflation coefficient (VIF) test can be used. In our study, we used Pearson’s correlation test to evaluate all variables in the model, and the results are presented in Table 1. We find a high correlation coefficient between the ESG score and the three pillars. This result is normal because the ESG score is calculated on Refinitiv as a weighted average of the score of the three pillars. To avoid multicollinearity problems, we used the ESG score and the three pillar scores separately and proposed different models. The absolute value of the correlation coefficient among the remaining variables is 0.545 at most. Based on statistical theory, significant multicollinearity is typically considered to occur when the correlation coefficient between independent variables exceeds 0.8. As a result, it can be concluded that the model developed in this research does not exhibit any significant multicollinearity issues.

Table 3 presents the results of the regression models. We found that the only FP indicator on which ESG positively impacts are Revenues. This effect is statistically significant with a p-value < 0.01. This result shows that the positive unit change in ESG score allows for an estimated average increase in Revenues of 0.70% or 0.50%. This result is in line with the study by [112], where it is shown that ESG factors positively impact on corporate revenues. This is mainly because customers reward companies that adopt ESG strategies, increasing FP in the short term. This finding aligns with [113] study, which found a positive correlation between a company’s ESG scores and its revenues. The study suggests that implementing ESG policies can effectively attract consumers. As stated by [42], both the Utilities and Energy sectors do not have a very good reputation because of their environmental impact, but ESG investments do increase credibility and visibility with stakeholders, and this can positively impact revenue. Likewise, also [44] align with our findings, highlighting that Utilities sector has a hybrid objective that is both profit-oriented and aimed at creating value at the societal level [43]. confirm that ESG-related benefits for firms are even more relevant to sectors like Utilities and Energy, that rely strongly on both their reputational assets and natural resources [42]. We also find that ESG does not have a significant impact on other financial indicators. Regarding digitalization, we can see that it does not significantly moderate the relationship between the overall ESG score and FP.

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Table 3. Results of the regression model (source: authors’ elaboration).

https://doi.org/10.1371/journal.pone.0314078.t003

Moreover, Table 3 shows the results of the regression models whereas the relationship between each of the three ESG pillars and FP and digitalization was tested.

The results indicate that the E-score has a statistically significantly negative effect on ROA, showing that the expense of ESG practices becomes a cost to shareholders, limiting investment opportunities and overall performance [17]. Spending money on environmental goals (e.g., pollution control) increases expenditure, lowers profitability, and diminishes competitive advantage [114]. In addition, our results show that the S-pillar has a positive and highly significant (p-value <  0.01%) impact on ROA. This result is in line with the study of [115]. We can therefore state that to increase firm profitability, the management of the companies should pay particular attention to the social component of the ESG practices since the S score has the largest relevance in the association with ROA. The negative and significant association between the E pillar score and ROE suggests that companies with higher E pillar scores tend to have lower ROEs. This may be because companies that are more focused on environmental responsibility may be less focused on maximizing profits [106]. Furthermore, it’s possible that firms that place a higher priority on environmental responsibility are more inclined to invest in long-term initiatives that provide lower returns in the short term. In contrast to environmental pillar E, our results show that social pillar S has a positive and significant impact on ROE. Social practices and activities are considered as stimulating methods of corporate efficiency, and thus, are more successful in generating better FP [116]. The results confirm that investments in social activities, such as training, professional development programs and human rights policy, can improve business operational efficiency. In this context, our results suggest that social activities positively impact on FP, and this is consistent with the literature. In this field [117], showed that the social activities have a positive effect on FP in the long run [43]. stated that these benefits could be stronger in the sectors that depend more on reputation, brands, and large quantities of natural resources, such as the energy sector. The negative link between pillar E and these indicators of business efficiency, could be due to increased costs. In fact, the study of [118] states that implementing an environmental quality management strategy has associated different costs items. Additionally, adopting an environmental quality management policy may result in challenges related to shifting supply chain relationships and addressing moral dilemmas [119]. Regarding the relationship between ESG pillars and revenues, the results show that pillars E and G significantly and positively impact them, exceeding the negative and significant impact of the pillar S. The results obtained for the E and G pillars align with the findings of [113], which indicate that stronger ESG practices, particularly in the areas of environment (E) and governance (G), are linked to enhanced operating performance. This improvement can be attributed to the relationship with operating expenses, rather than asset turnover or increased revenues. Additionally, the positive impact of the governance component of ESG on financial performance demonstrates that investing in this pillar allows businesses to attract a diverse range of creditors and investors. Better governance serves as a market signal and attracts more customers, leading to an increase in revenue [112]. The positive relationship between ESG and corporate revenues may be related to the fact that, as supported by [51], companies in the Utilities sector have a hybrid nature in which both the logic of profit maximization and the goal of creating value for society coexist. Investment in ESG factors would certainly lead to the creation of value for the company and consequently an economic return, in this case in terms of revenues, linked to greater credibility with stakeholders. An increase in corporate sustainability standards positively affects complementary aspects of economic performance, particularly through reputation effects and through increased differentiation and innovation [44]. The regression model’s findings indicate that the EBITDA margin is unaffected by environmental performance. The company’s main focus in terms of environmental performance is empowering the community, rather than addressing the environmental impact caused by its operations. However, this impact is deemed insignificant and does not have a significant effect on the company’s financial performance [120]. Instead, the governance pillar has a positive effect on EBITDA margin. These results are in line with [121], who found a positive relationship. They state that companies with good governance openly share information with the public, as it demonstrates management’s competence in managing the company. As can be seen from the Table 3, digitalization has a positive and significant impact on EBITDA margin and Revenues. Highly digitized companies can produce products with zero marginal distribution and production costs, thus being able to achieve huge revenues [122,123] found that investment in digitalization is profitable since it can lead to a significant increase in a company’s FP, as digitalization can significantly improve productivity and sales, but without leading to an acceleration of total costs. The results obtained in this context suggest that digitalization creates a strategic competitive advantage that is reflected in the optimization of the production process and the improvement of company performance through increased production efficiency [124].

Table 3 presents the moderation effect of Digitalization (SDG 9) in the relation between the three ESG pillars and FP. The regression results show that the interaction terms, namely, Epillar_SDG9 and Gpillar_SDG9, have a significantly negative moderating impact on the EBITDA MARGIN and REVENUES, respectively. Since the sample analyzed covered the period between 2019 and 2021, this result could be explained by the early stage of the digitalization process, that did not unfold all of it long-term effects, so far. So, we have not been able to see the benefits of investments in digitalization, yet, but only the efforts in terms of investment costs.

During the period we have analyzed, the COVID-19 pandemic has greatly accelerated the digitalization of services. Numerous industries have experienced significant disruptions, leading many sectors to completely restructure their workflows, processes, and procedures [125]. In this context, digitalization has not been a strategic investment, but survival operational response to face the emergency. This may have caused inefficiencies that are reflected in financial efficiency indicators. Hence, investments in digitalization did not increase the value created by the company, as they only served to substitute the way some support activities were carried out before the COVID-19 outbreak.

Furthermore, this explanation is paradoxically coherent with the contradicting findings that succeeded in proving the moderating role of digitalization between ESG and firm performance [2]. In fact, the results of the previous study [2] are obtained by investigating mostly different variables (e.g., Tobin’s Q, cash flow, debt ratio, single ESG pillars: E, S, G) as well as under different conditions of analysis compared with our study. First, the two works utilize different data sources: firms listed in the Indonesian Stock Exchange vs our Refinitiv Eikon dataset–- that we selected (also) because it is specialized in the provision of ESG scores. Second, the research efforts are conducted within different macro- and micro-economic contexts: only Indonesian firms with single-country data relying on a developing economy context vs firms included in Refinitiv Eikon from countries of the American/European/Oceanian continents (i.e., mostly developed economies). Thus, our study ensures a wider (multi-country) geographical and macro-economic coverage. Third, our work weighs less the pre-pandemic period as we focus on 2019–2021, while the previous study [2] on 2017–2021, whereas 60% of their firm-year data refer to an obsolete time by now. This further enforces our explanation that the recent investments in digitalization have not shown all their effects, yet, and more time is needed to capture their impact. Fourth, variables are partly different either in terms of conceptualization or operationalization. Fifth, the granularity of the statistical analysis conducted for the ESG scores is higher in our study, as we do not only consider the overall ESG score, but also the single score for ach pillar: E scores, S scores, G scores. Sixth, we make a specific sectoral choice for our analysis (i.e., energy and utilities sectors), thus, our results offer higher reliability and direct applicability to those sectors, as we do not investigate simultaneously firms from multiple industries/sectors.

5. Conclusions and implications

This study examines the effect of ESG on FP and the moderating role of digitalization in this relationship by analyzing 303 listed companies in the energy and utilities sector for 2019 and 2021, using data from Refinitiv Eikon. The regression models show that ESG positively affects firm revenue because customers reward good ESG strategies, boosting short-run performance. ESG strategies can add value to a company’s products and boost buyers and investors’ desire to buy, resulting in increased business revenue. In addition, the findings showed that the relationship between ESG and FP is not unique and positively correlated on each of the three ESG pillars. These results are coherent with a stream of the field literature that demonstrates the existence of a significant relationship among ESG and FP [61,62]. Beyond this, our findings suggest a positive relationship that confirms the general tendency of previous studies [9–11,60], whilst disowns the existence of a negative impact reported in other studies [5,13–18]. In addition, each ESG pillar plays a different role in the intertwined dynamics involving SDG9, FP and ESG, thus, depicting a more complex scenario deserving further in-depth analyses on single ESG pillars [26].

However, our findings present even more contrasting results if compared to other studies that do not find any significant relationship among the investigated variables [23,38,63–65].

Our second objective was to analyze the moderating influence of digitalization on the ESG-FP relationship. The findings indicate that digitalization, measured by SDG 9, when combined with ESG pillars, in particular E and G pillars, adversely affects a firm’s FP (REVENUES and EBITDA MARGIN). However, digitalization analyzed individually has a significant and positive impact on the same FP indicators.

This result, however, can be affected by the period analyzed, since only the early stage of the digitalization process accelerated by the COVID-19 outbreak was considered, whereas the investments costs of E and G pillars were not covered by the expected long-term benefits, yet. Such a possible explanation is further supported by the fact that the S pillar has not shown any significant impact, yet.

In addition, only one study [2] investigated the moderating role of digitalization, succeeding in proving its significant positive impact on the ESG-FP relationship. This result is not confirmed by our research, that proves a significant, but negative role of digitalization as a moderator, whilst we also prove a direct, significant positive effect on FP.

Therefore, future research should investigate if these findings are confirmed in the mature stage of the digitalization process. Beyond this limitation related to the time, this study suffers from other limitations which can direct future research. First, we focused on Energy and Utilities-sector firms only. The study can be extended in the future to cover other sectors. In this study, the short-term financial effect of digitalization was examined, but the results do not reflect its long-term mechanism. Theoretically, digitalization will have a sustainable effect on FP, so future research can focus more on the long-term effects of digitalization. Another limitation of our study may be in the variable used to represent digitalization. Future research could use a different indicator of digitization. In addition, since moderation changed the results significantly, future research should test additional variables and more complex scenarios of analysis, as suggested also by [22].

This pioneering study paves the way of a better understanding of the relationship between ESG and FP, and the impact of digitalization as a moderator. Moreover, the results of this study may have diverse practical implications. For managers, the results of this study suggest that ESG integration in corporate organizations positively affects FP because a strong ESG proposition enables businesses to grow both in existing and new markets. Therefore, managers should be confident that customers tend to reward ESG investments and to perceive the increased value of a company that poses ESG approaches at the forefront of its managerial strategies. Hence, the initial investments done in order to implement ESG initiatives can be undertaken by managers, as long-term effects of ESG promise to be beneficial to firms. However, the practical implementation of ESG investments suggests that executives and managers should allocate resources to ESG activities through adopting more efficient and rigorous approaches. This is very important when considering that the impact of ESG activities only unfold their entire magnitude after some years. Then, efficiency plays a key role in making the ESG investments affordable and sustainable during their initial phase. Additionally, the study’s findings support the investment in digitization by demonstrating notable enhancements in business operations, including higher financial efficiency, which could eventually strengthen company revenues. However, managers should consider that the beneficial effects of digitalization are not captured in full by our analysis, since we have limited the time up to 2021, whilst the recent large investments in digitalization occurred during the pandemic and have to show their entire impact, yet. For instance, all the National Recovery and Resilience Plans throughout the European Union started after 2021 and are still in operation. Thus, this pragmatically explains why the digitalization efforts show a negative impact and are not mature enough to do a U-turn and prove to be beneficial. However, as for [26] research, managers should support the creation of as well as nurture digital transformation capabilities at the organizational level to improve corporate financial performance.

Under the theoretical perspective, this work builds on the adoption of the IST framework [2] and represents a novel application of this theoretical framework in literature. However, we conceptualized the theoretical framework with an in-depth separation of the three ESG pillars to obtain a more nuanced theoretical understanding of the cross section of the ESG roles in connection with digitalization and corporate financial performance.