The influence of sustainability reporting on the profitability of listed companies in the European Union

Ștefan, Alexandra; Pitulice, Ileana Cosmina; Stănilă, Georgiana Oana; Ștefănescu, Aurelia Article The influence of sustainability reporting on the profitability of listed companies in the European Union Amfiteatru Economic Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: Ștefan, Alexandra; Pitulice, Ileana Cosmina; Stănilă, Georgiana Oana; Ștefănescu, Aurelia (2025) : The influence of sustainability reporting on the profitability of listed companies in the European Union, Amfiteatru Economic, ISSN 2247-9104, The Bucharest University of Economic Studies, Bucharest, Vol. 27, Iss. 70, pp. 994-1010, https://doi.org/10.24818/EA/2025/70/994 This Version is available at: https://hdl.handle.net/10419/328032 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ AE The Influence of Sustainability Reporting on the Profitability of Listed Companies in the European Union 994 Amfiteatru Economic THE INFLUENCE OF SUSTAINABILITY REPORTING ON THE PROFITABILITY OF LISTED COMPANIES IN THE EUROPEAN UNION Alexandra Ștefan1, Ileana Cosmina Pitulice2 , Georgiana Oana Stănilă3 and Aurelia Ștefănescu4 * 1)2)3)4) Bucharest University of Economic Studies, Bucharest, Romania Please cite this article as: Ștefan, A., Pitulice, I.C., Stănilă, G.O. and Ștefănescu, A., 2025. The Influence of Sustainability Reporting on the Profitability of Listed Companies in the European Union. Amfiteatru Economic, 27(70), pp. 994-1010. DOI: https://doi.org/10.24818/EA/2025/70/994 Article History Received: 25 March 2025 Revised: 5 May 2025 Accepted: 5 June 2025 Abstract Sustainability reporting, an imperative for European companies, is a multidimensional effort that results in performance measured by ESG metrics. The unintended consequence of this imperative has been the influence on companies’ profitability. By using quantitative research methods, the objective of the study is to identify the indicator, i.e., the combined ESG score and its components Environment (ENV), Social (SOC) and Governance (GOV), with the most significant impact on the profitability of companies in the European Union, measured by using the Return on Assets (ROA) and Earnings Before Interests and Taxes (EBIT) indicators. The statistical analysis, using multiple linear regression models applied to the panel data, led to the achievement of the research objective. The sample is composed of 432 companies operating in 18 of the EU member countries, and the period under analysis is 2014-2023. The obtained results revealed that the factor with the most significant impact on the ROA profitability indicator is the Social Pillar, and in terms of the EBIT profitability indicator, the factor with the highest impact was shown to be the combined ESG score. Thus, we prove that although sustainability reporting is a complex process involving numerous efforts and organisational changes for companies it also delivers value-added by medium and long-term financial performance and by confirming the estimated positive effects of the Corporate Sustainability Reporting Directive (CSRD). The study contributes to the ESG literature by bringing together companies from developed and emerging EU economies, using the EBIT indicator to test the influence of the ESG score and its components on profitability. Keywords: sustainability reporting, ESG score, profitability, European Union, multiple linear regression, stakeholder theory, Directive 2014/95/EU JEL Classification: C32, L21, Q56 * Corresponding author, Aurelia Ștefănescu – e-mail: aurelia.stefa[email protected] This is an Open Access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2025 The Author(s). Sustainability Reporting: Catalyst for Organisational and Professional Change AE Vol. 27 • No. 70 • August 2025 995 Introduction In recent years, sustainability has become an area of global interest, from governments thinking about national strategies, to bodies regulating actions and setting rules for reporting them in a structured way so that data is credible, comparable, and relevant; entities also play an important role in the sustainability loop, incorporating environmental, social, and governance (ESG) strategies into their normal business cycle and presenting as required or voluntarily a surplus of non-financial information in annual reports. Entities’ compliance with ESG non-financial disclosures, whether voluntary or required, ultimately aims to minimise the risk of reputational damage (Arouri, Gomes and Pukthuanthong, 2019) to their reputation in the environment/community in which they operate. The ESG score has become one of the main tools for assessing sustainability performance in this area (Friede, Busch and Bassen, 2015). Depending on the agency that calculates it, the ESG score is derived based on different methodologies, which creates a number of limitations in its use (Clement, Robinot and Trespeuch, 2023). Irrespective of the calculation methodology, the ESG score is, however, structured on the three pillars: environmental, social, and governance. Studies in the dedicated literature conclude that sustainability performance generates financial performance for the company (Whelan et al., 2021). Various indicators have been used to assess financial performance in this endeavour, for example, return on assets (ROA), return on equity (ROE), stock performance (Whelan et al., 2021), return on capital (ROC) (Almeyda and Darmansyah, 2019), earnings before interest and taxes (EBIT) (D’Amato, D’Ecclesia and Levantesi, 2023). The aim of our research is to measure the impact that sustainability performance as assessed by the ESG score and by analysing its three major components, namely environmental (ENV), social (SOC), and governance (GOV), has on the financial performance of companies. In the research, financial performance was measured using ROA and EBIT profitability indicators. These financial indicators were tested individually against each sustainability element (ESG, ENV, SOC, GOV score) to identify possible correlations and influences of non-financial elements on the financial components. Thus, four research hypotheses were tested, each of them being related to one sustainability element, and being decomposed into two secondary hypotheses that relate to each financial indicator used in the research (ROA and EBIT). The theoretical positioning of our research is realised within the framework of stakeholder theory, one of the most widely used foundations for analysing the financial performance generated by the ESG score (Whelan, et al., 2021). The rationale for choosing this theoretical foundation is the belief that an environmentally sustainable company and the community in which it operates will benefit from the trust of its stakeholders (e.g. employees, customers, creditors, society), which will bring financial benefits in the short, medium, and long term. Our research results conclude that the overall ESG score is significant and positive in relation to the profitability of European companies, measured by both EBIT and ROA, but only sustainable social and governance practices induce financial benefits, while environmental strategies do not significantly influence their financial performance. Although sustainability reporting is a multidimensional, difficult, and cost-generating process for companies, it also generates mediumand long-term financial performance. AE The Influence of Sustainability Reporting on the Profitability of Listed Companies in the European Union 996 Amfiteatru Economic Our research contributes to the ESG literature as it brings together European Union (EU) companies from both developed and emerging economies and tests the influence of ESG score and its components on their profitability as measured by EBIT. Also, EBIT as a measure of financial performance has previously only been used by D’Amato, D’Ecclesia, and Levantesi (2023), from our research. The paper is structured as follows: the first section presents the literature review; the second section is dedicated to the research methodology; the results are presented in the third section; the last section is dedicated to the conclusions, the limitations of the study, and future research directions. 1. Literature review Both in terms of regulators and the literature, sustainability is an area of growing interest and is being addressed from multiple perspectives. At the European Union level, regulatory frameworks have been put in place to address sustainability issues, including Regulation (EU) 2020/852 on establishing a framework to facilitate sustainable investments (Taxonomy Regulation), Directive 2014/95/EU on non-financial reporting by companies (NFRD) and Directive 2022/2464 on sustainability reporting by companies (CSRD). The abovementioned Directives are being transposed into Member States’ legislation according to the timetable. Derived from the concept of sustainability, in 2005, the word ESG was introduced (Almeyda and Darmansyah, 2019). Nowadays, ESG score, regardless of how it is constructed, is considered as one of the main financial tools to assess the sustainability performance of a company by responsible investors (Friede, Busch and Bassen, 2015). The ESG score is measured by rating agencies using various methodologies (Berg, Koelbel and Rigobon, 2022), but also by various authors in the literature who have developed their own ESG methodologies, as inventoried by Clement, Robinot and Trespeuch (2023). The component elements of the ESG score may differ depending on the entity calculating it (Berg, Koelbel and Rigobon, 2022) on the one hand, and on the other hand, even if there are identical elements, the individual weight given to them may differ (Dimson, Marsh and Staunton, 2020). Although the ESG score can be approached in a holistic manner, the components that fall into its composition, ENV, SOC and GOV, present different levels for companies (Bissoondoyal-Bheenick, Brooks and Do, 2023). Also, the relevance of the ESG score and its components is not universally interpretable, but depends on the geographical area (Dimson, Marsh and Staunton, 2020; Bissoondoyal-Bheenick, Brooks and Do, 2023) and the type of industry in which the company operates (Garcia, Mendes-Da-Silva and Orsato, 2017; Dimson, Marsh and Staunton, 2020; Bissoondoyal-Bheenick, Brooks and Do, 2023), generating the need to use it as an exclusively contextual and not generally valid analysis tool. Clement, Robinot and Trespeuch (2023) present an analysis of the views in the literature on the various factors that influence the ESG score. The influence of ESG on different corporate performance indicators has been analysed in a variety of research (Bissoondoyal-Bheenick, Brooks and Do, 2023), concluding that there is a significant positive correlation between CSR/ESG policy and corporate profitability (Friede, Busch and Bassen, 2015; Whelan et al., 2021). A meta-analysis developed for the period 2015-2020 was conducted by Whelan et al. (2021) based on more than 1,000 studies on the relationship between ESG and financial performance, considering corporate financial performance and investment performance as criteria. Sustainability Reporting: Catalyst for Organisational and Professional Change AE Vol. 27 • No. 70 • August 2025 997 Papers addressing the relationship between ESG and corporate financial performance have used indicators such as ROA, ROE, and stock performance, while papers analysing the relationship between ESG and investment performance have taken an investor perspective using, for example, the Sharpe ratio (Whelan et al., 2021). Aydogmus, Gulay and Ergun (2022) examine the impact of the ESG score and its components ENV, SOC, and GOV on the firm value, as determined by the Tobin’s Q ratio, and on firm profitability, as measured by ROA. The results showed a significant and positive influence of the combined ESG score, as well as the individual, social, and governance scores on firm value, while the environmental score did not show a significant impact. In terms of the effect on ROA expressed by the ROA indicator, all factors (ESG, ENV, SOC and GOV) revealed a positive and significant influence. Agoraki et al. (2023) perform a twodimensional analysis considering the 2014/95/EU directive and the COVID-19 pandemic. The results revealed that the ESG reputational risk influences the financial performance of entities, i.e., the lower the risk, the better the performance. Similarly, Almeyda and Darmansyah (2019) approached financial performance from two perspectives, namely the accounting perspective expressed by the ROA and ROC (Return on Capital) indicators and the stock market perspective, namely the Stock Price and P/E (Price to Earnings) indicators, showing a positive and significant influence of ESG reporting on the ROA and ROC indicators, with insignificant results for the other indicators. The ENV pillar shows a positive and significant relationship on ROC and Stock Price indicators, but the SOC and GOV pillars do not reveal a significant relationship on company performance. The research results by Minutolo, Kristjanpoller and Stakeley (2019) reveal that ESG has a positive influence on financial performance as measured by Tobin’s Q ratio and ROA. By analysing the relationship between sustainability performance and financial performance of entities in environmentally sensitive industries using ROA, ROE, and Tobin’s Q ratio as indicators of entity profitability, Naeem, Cankaya and Bildik (2022) revealed that sustainability performing entities have increased profitability measured by ROA and Tobin's Q ratio, leading to higher market values. Research conducted by Sariyer and Tașkin (2022) on a sample of companies listed in the Borsa Istanbul Sustainability Index highlights that higher ESG scores do not always mean that companies are performing effectively in all three pillars. Also, higher ratings in the environmental and social pillars are related to company size, while profitable companies (in terms of ROA) are those with better corporate governance practices, as they have higher scores in the governance pillar. Reporting on entities in Thailand, Treepongkaruna and Suttipun (2024) conclude that ESG reporting has a positive and significant impact on their profitability, as expressed by ROA and ROE indicators. A novel element appears in the research by D’Amato, D’Ecclesia and Levantesi (2023) that addresses EBIT as a profitability indicator, in a sample of 422 large, mid and small capitalisation companies in 17 European countries, over the period 2011-2020. The results revealed that, in order to have a positive impact on EBIT, companies need to pay particular attention to ESG measures, so that the scores obtained are high, above 60 units according to the calculation methodology applied by LSEG (Refinitiv). Studies centred on the analysis of ESG scores are developed based on different theories specific to the social sciences. The analysis by Whelan et al. (2021) notes the prevalence of stakeholder theory (ST) in articles published between 2015-2020, although as a cumulative percentage, AE The Influence of Sustainability Reporting on the Profitability of Listed Companies in the European Union 998 Amfiteatru Economic other theories (e.g., legitimacy theory) were often used by researchers. ST stands out in many articles targeting the ESG score, as its principles provide for fair disclosure to all categories of stakeholders without privileging investors, while the objective of ESG policy is precisely to demonstrate that the entity creates value for all stakeholders, not just shareholders (Bissoondoyal-Bheenick, Brooks and Do, 2023). Individually or grouped in energy communities (Delcea et al., 2024), stakeholders are at the core of the concept of sustainability. Studies (Chang, Kim and Li, 2014) examine how different ESG disclosure practices target different categories of stakeholders and how each affects entity performance. Positive relationships between sustainability performance and entity profitability as expressed by various indicators support stakeholder theory (Naeem, Cankaya and Bildik, 2022). From our study, we found that although the literature has addressed the link between sustainability reporting, as expressed in ESG scores, and financial performance, as measured by indicators such as ROA, ROE, etc., from multiple perspectives, most studies focus predominantly on developed economies (Almeyda and Darmansyah, 2019; BissoondoyalBheenick, Brooks and Do, 2023) or conduct research at the level of a single country (Sariyer and Tașkin, 2022; Treepongkaruna and Suttipun, 2024), ignoring the context of companies in emerging economies. We believe that such approaches create a significant gap and may influence perceptions about the influence that sustainability reporting has on financial performance. Based on the premise of rising stakeholder interest in ESG and ST and the idea that the longterm profitability of companies increases when they are effectively managed (Donaldson and Preston, 1995; Freeman et al., 2010), our paper analyses the impact of ESG score on the financial performance of European companies, thus aiming to demonstrate that corporate sustainability reporting involves consistent efforts (financial, human resources, time costs, and so on), but in the long run it is also financial performance generator. Moreover, a novel element is the integration of companies from developed countries and emerging economies in a common analytical framework, which, in our view, increases the validity of the results. The research question will focus on identifying the sustainability performance indicator with the most significant impact on the profitability of EU companies (expressed as ROA and EBIT), namely the overall ESG score or the component elements of its structure. Thus, the research hypotheses are as follows:  H1. The ESG score has a positive and significant impact on the profitability of companies.  H1.1. The ESG score has a positive and significant impact on the profitability of companies expressed by the ROA indicator.  H1.2. The ESG score has a positive and significant impact on the profitability of companies expressed by the EBIT indicator.  H2. The environmental pillar has a positive and significant impact on the profitability of companies.  H2.1. The environmental pillar has a positive and significant impact on the profitability of companies expressed by the ROA indicator.  H2.2. The environmental pillar has a positive and significant impact on the profitability of companies expressed by the EBIT indicator.  H3. The social pillar has a positive and significant impact on the profitability of companies. Sustainability Reporting: Catalyst for Organisational and Professional Change AE Vol. 27 • No. 70 • August 2025 999  H3.1. The social pillar has a positive and significant impact on the profitability of companies expressed by the ROA indicator.  H3.2. The social pillar has a positive and significant impact on the profitability of companies expressed by the EBIT indicator.  H4. The governance pillar has a positive and significant impact on the profitability of companies.  H4.1. The governance pillar has a positive and significant impact on the profitability of companies expressed by the ROA indicator.  H4.2. The governance pillar has a positive and significant impact on the profitability of companies expressed by the EBIT indicator. In order to support the above hypotheses, table no.1 summarises the correspondence between the literature reviewed and the secondary research hypotheses. Table no. 1. Grounding the research hypotheses No. Research hypothesis Literature references H1.1 The ESG score has a positive and significant impact on the profitability of companies expressed by the ROA indicator. Almeyda and Darmansyah (2019); Minutolo, Kristjanpoller and Stakeley (2019); Aydogmus, Gulay and Ergun (2022); Sariyer and Tașkin (2022); Agoraki, et al. (2023); Treepongkaruna and Suttipun (2024) H1.2 The ESG score has a positive and significant impact on the profitability of companies expressed by the EBIT indicator. D’Amato, D’Ecclesia and Levantesi (2023) H2.1 The environmental pillar has a positive and significant impact on the profitability of companies expressed by the ROA indicator. Almeyda and Darmansyah (2019); Aydogmus, Gulay and Ergun (2022); Sariyer and Tașkin (2022); Treepongkaruna and Suttipun (2024) H2.2 The environmental pillar has a positive and significant impact on the profitability of companies expressed by the EBIT indicator. Authors’ contribution H3.1 The social pillar has a positive and significant impact on the profitability of companies expressed by the ROA indicator. Almeyda and Darmansyah (2019); Aydogmus, Gulay and Ergun (2022); Sariyer and Tașkin (2022); Treepongkaruna and Suttipun (2024) H3.2 The social pillar has a positive and significant impact on the profitability of companies expressed by the EBIT indicator. Authors’ contribution H4.1 The governance pillar has a positive and significant impact on the profitability of companies expressed by the ROA indicator. Almeyda and Darmansyah (2019); Aydogmus, Gulay and Ergun (2022); Sariyer and Tașkin (2022); Treepongkaruna and Suttipun (2024) H4.2 The governance pillar has a positive and significant impact on the profitability of companies expressed by the EBIT indicator. Authors’ contribution AE The Influence of Sustainability Reporting on the Profitability of Listed Companies in the European Union 1000 Amfiteatru Economic 2. Research methodology In the research, using panel data, we conducted a quantitative analysis based on an econometric model (similar to many researches in economics, e.g., Dima, Bușu and Vargas, 2022; D’Amato, D’Ecclesia and Levantesi, 2023; Treepongkaruna and Suttipun, 2024). Decomposing the ESG score into the three components is a method used in the literature to identify the extent to which each component affects firm performance (BissoondoyalBheenick, Brooks and Do, 2023). To achieve the research objective, we used the LSEG Data & Analytics (Refinitiv) database. The sample includes companies listed on stock exchanges operating in Europe for the period 2014-2023. The extracted indicators are the following: GICS (Global Industry Classification Standard) Industry, ESG Score, Environmental Pillar Score, Social Pillar Score, Governance Pillar Score, Net Income After Taxes, Total Assets, EBIT (Earnings Before Interest and Taxes). The filters generated an initial sample of 6.787 companies. As this study analyses only entities from European Union countries, which are subject to Directive 2014/95/EU, the first step was to eliminate companies from non-EU countries, i.e., 2103 companies. The next step was to eliminate entities that did not submit data in each of the reference years 2014-2023 for each indicator. The final sample thus consists of 432 companies from 18 EU Member States, representing a total of 4320 observations. The period analysed starts with the year of publication of the Directive. In our view, this is a period that can illustrate important trends in companies' non-financial reporting behaviour as it contains temporal subdivisions dominated by "quiet" but also economically and sociopolitically difficult years: the 2014-2016 transposition period of the requirements was followed by a period without economic, financial, or political turbulences recorded at the European level, but from 2020 onwards the COVID-19 pandemic and subsequently the war on the EU’s Eastern border marked a difficult period at the European level. Thus, by the period chosen for the study, our research considers the challenges generated by external factors in addition to those caused by internal factors (data availability and quality, complexity of the supply chain, personnel time and knowledge, technologies, costs, management involvement, and so on). The research is based on the independent variables ESG Score, Environmental Pillar Score,, Social Pillar Score and Governance Pillar Score calculated according to the algorithms of the LSEG Data & Analytics (Refinitiv) database. The independent variables in our study are numerical data and influence the dependent variable. The dependent variables of the study are the financial indicators ROA and EBIT and are expressed in numerical form. The former has been calculated as the ratio of Net Income After Taxes to Total Assets, both extracted from LSEG Data & Analytics (Refinitiv) and indicates the return on assets, and has been used in numerous studies similar to the present one (Almeyda and Darmansyah, 2019; Naeem et al., 2021; Saygili, Arslan and Birkan, 2021; Giannopoulos et al., 2022; Aydogmus, Gulay and Ergun, 2022; Bahadır and Akarsu, 2024; Treepongkaruna and Suttipun, 2024). EBIT is the second profitability indicator and is measured as earnings before interest and taxes. This indicator is less common in the literature (D’Amato, D’Ecclesia and Levantesi, 2023) and is used as a dependent variable influenced by the ESG scores obtained by companies. For the control variable, we use firm size defined as the natural logarithm of total assets, consistent with studies in the literature (Aydogmus, Gulay and Ergun, 2022; Treepongkaruna and Suttipun, 2024). However, we also admit the existence of some important limitations of the study, which consist of the use of a small Sustainability Reporting: Catalyst for Organisational and Professional Change AE Vol. 27 • No. 70 • August 2025 1001 sample in order to meet the requirements of dissemination of information necessary to carry out the research, which may reduce the degree of generalisability of the results to a larger population. Another limitation we believe may be represented by the application of statistical tests, in the sense that there may be variables and factors that have not been taken into account in the construction, running, and testing of regression models. We note that robustness tests were not applied in the research. The analysis of the variables used in the study, for the period 2014-2023 and the 432 sample companies, is presented in Table no. 2. Table no. 2. Descriptive statistics N Min Max Mean Std. Deviation ESG 4320 0.62 95.73 63.08 19.12 ENV 4320 0.00 99.20 63.45 24.51 SOC 4320 0.23 98.20 67.37 22.09 GOV 4320 0.86 98.75 56.83 22.12 EBIT 4320 -9.279.00 57.486.15 1.781.18 3.848.11 ROA 4320 -3.57 0.68 0.02 0.14 lnTASST 4320 1.63 14.79 9.40 1.75 Year 4320 N/A N/A N/A 2.87 Valid N 4320 The average recorded EBIT indicator is 1781.18 million euro, with 270 observations obtaining negative values, i.e. losses before interest and taxes. One observation shows an EBIT value of zero, while 4049 observations show profit before interest and taxes. The ROA indicator obtains an average of 2.84% out of the 4320 observations; 3698 observations show positive values of the indicator, i.e., 85.6% of the sample. Consequently, in order to address the research hypotheses, we constructed the following regression model: D variable(it) =  + 1 I variable(it) + 2 Control(it) + (it) (1) Where:  D variable(it) – dependent variable (ROA/ EBIT);  I variable(it) – independent variable (ESG Score/ Environmental Score/ Social Score/ Governance Score);  Control(it) – control variable (log(TASST));  (it) – the error term for firm i in period t. Thus, for each of the four research hypotheses stated in the study, two regression models measure the impact of the independent variable (ESG Score/ Environmental Score/ Social Score/ Governance Score) on the dependent variables (ROA and EBIT). Table no. 3 presents the eight regression models used in the paper to obtain results that address the research hypotheses. AE The Influence of Sustainability Reporting on the Profitability of Listed Companies in the European Union 1008 Amfiteatru Economic models to test the research hypotheses, we obtained mixed results. These express a positive and significant relationship of the ESG score with profitability indicators ROA and EBIT, converging with the results obtained by authors such as Almeyda and Darmansyah (2019), Aydogmus, Gulay and Ergun (2022), D’Amato, D’Ecclesia and Levantesi (2023), Treepongkaruna and Suttipun (2024). The positive and significant impact of the environmental pillar on firms' profitability (as measured by ROA and EBIT) has not been econometrically validated, and our results differ from the study of Aydogmus, Gulay and Ergun (2022). For the social pillar, our results indicate that it has a positive and significant impact on firm performance. The results are supported by similar studies such as Bissoondoyal-Bheenick, Brooks and Do (2023). The last hypothesis, that of the positive and significant impact of the governance pillar on the profitability of companies, records mixed results, in the sense that it has a positive and significant impact on the profitability of companies expressed by EBIT, but has an insignificant impact on the profitability of companies expressed by ROA. The results are divergent with the study by Aydogmus, Gulay and Ergun (2022), but similar to those obtained by Almeyda and Darmansyah (2019). Our research concludes that the ESG score has a significant and positive relationship with the profitability of European companies as measured by both EBIT and ROA, but only sustainable social and governance strategies induce financial benefits, while environmental policy/reporting does not significantly influence their financial performance. These findings are consistent with stakeholder theory, as they highlight the tendency for companies to adopt the sustainability requirements of the communities in which they operate through the information they disclose and the policies they implement. Given the positive and significant influence of the social and governance components on profitability, companies are encouraged to invest in employee rights, diversity, managerial ethics, and transparency in decision-making. However, although the environmental component does not have a significant impact on the profitability of companies, it should not be neglected, as regulatory and reputational risks can generate significant future costs. Investors should attach increased importance to ESG indicators to help inform investment decisions. Moreover, policy makers need to ensure sustainable transition through the right policies, fiscal incentives, and technical assistance so as to create a responsible and competitive economic framework aligned with the objectives of CSRD. The study contributes to the sustainability reporting literature, as it covers a sample of EU companies and tests the influence of the ESG score and its components on their profitability as measured by ROA and EBIT, and from our research, EBIT as a measure of financial performance has previously only been used by D’Amato, D’Ecclesia and Levantesi (2023). In terms of research limitations, we consider that one of them is determined by the selection of companies operating in the intra-EU space and subject to the non-financial reporting directives. 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