ESG, COE and Profitability in the Oil and Gas Sector

This chapter empirically explores Oil and Gas sector, trying to investigate the effect of ESG Scores on (1) Cost of equity (COE) and (2) Firm’s profitability (FP) for a sample of operating firms. We focus on a panel of data composed of more than 100 public firms, from 2002 to 2018/2019, and the main variables of interest are (1) The Implied Cost of Equity and (2) Return on Assets (ROA). We propose a dichotomic analysis with different aims of research: in the first analysis we try to estimate the firms’ ex-ante cost of equity adopting Easton Model, which expresses the share price in terms of one-year-ahead expected dividend per share and one- and two-year-ahead expected earnings per share. For the second analysis instead, we consider Return on Assets as a proxy for a firm’s profitability.