Algorithmic Approaches to Unraveling ESGC Impact on Financial Performance Based on the Ethical Investing in the Energy Sector

Authors : Ömür Saltık

Pages : 459-517

Doi:10.29132/ijpas.1540178

View : 38 | Download : 56

Publication Date : 2024-12-31

Article Type : Research Paper

Abstract :This study investigates the connection between Environmental, Social, Governance, and Controversies (ESGC) scores and financial performance in the energy sector across 27 countries and 521 firms from 2000 to 2021 through algorithms and machine learning techniques. The research employs advanced machine learning methods such as clustering analysis (k-means, DBSCAN, Hierarchical Clustering, and Affinity Propagation), violin plots, co-occurrence analysis, and regression techniques to ex-amine the effects of sustainable practices on corporate financial outcomes using a dataset with 640 variables. The study highlights sector-specific and geographical differences in the effectiveness of ESGC practices and demonstrates a positive asso-ciation between high ESGC scores and better financial indicators, such as profitabil-ity, earnings quality, liquidity ratios, and leverage. By presenting a strong case for incorporating ESGC scores into investment strategies, policy formulation, and cor-porate governance, the study suggests that responsible and ethical practices lead to enhanced operational efficiencies and better risk-adjusted returns. The findings, an-alyzed using machine learning techniques, indicate that companies with strong ESG practices have higher earnings quality and profitability, showing that sustainable practices benefit not only the environment and society but also the financial base line.
Keywords : makine öğrenmesi, kümeleme ve regresyon algortimaları, çevresel, sosyal, yönetişim ve tartışmalar (ESGC) skorları, etik yatırım, enerji sektörü