Sustainable Practices and Financial Performance in Latin America: An Analysis of Environmental Scores

Abstract

Purpose: This study explored the relationship between environmental scores and financial performance in Latin American firms. Design/Methodology: Using a dataset encompassing 1 708 observations from 372 firms between 2015 and 2020, this study employed panel data analysis to investigate the relationship between environmental scores and Return on Assets (ROA). Findings: The empirical findings indicate that the current environmental performance in Latin America has a limited impact on firms’ financial performance. However, positive results were observed in Brazil, Mexico, and Chile, where environmental practices and financial outcomes have been successfully integrated. Conclusions: By examining the influence of Environmental, Social, and Governance (ESG) scores, particularly environmental scores, on ROA in Latin American firms, this study contributes to better understanding the complex relationship between sustainability and financial performance in the region. In addition, it underscores both the challenges and opportunities that Latin American firms face in aligning environmental performance with profitability. According to the findings, enhanced strategies and mechanisms should be developed to bridge the gap between environmental and financial outcomes. While Latin America has made progress in establishing consensus on environmental practices, there remains a pressing need to develop robust strategies that effectively integrate sustainability and profitability. Originality: This study provides valuable insights for policymakers, investors, and firms seeking to navigate the interplay between sustainability and financial success in Latin America.