PTDid ESG help Latin American companies get through the pandemic?
ESG stands for how a company handles the environment, people and its own governance. In three studies of listed companies from 2018 to 2023, the thesis asks whether a higher ESG score changes executive pay, profit, market value and the interest a company pays, and whether the pandemic changed any of that. Explained in 12 screens.
The company resting on the three ESG pillars and the outcomes the thesis followed. Diagram: the heights are not data.
Three letters sum up how a company treats the planet, people and its own leadership
Companies disclose what they do on each front, and databases such as Refinitiv turn that into an ESG score. The thesis uses this score, both the total and each letter. Flip the cards.
Definitions from sections 3.3.2 and 4.3.2 of the thesis. The score measures what the company discloses and does on each topic; the thesis speaks of ESG disclosure.
Does being responsible pay off? Studies still disagree
The topic took off: articles mentioning "ESG" went from fewer than a hundred a year up to 2018 to 1,164 in 2023. But a review of more than a thousand studies found a bit of everything. And almost all of them look at developed markets, not at Latin America.
Tap a type of answer.
Out of every 100 studies on ESG and financial performance published from 2015 to 2020 (Whelan et al., 2021, cited in section 3.2.1). Article counts in Scopus: Ararat et al. (2021), cited in section 1.1.
Three studies, six years and a crisis in the middle
The pandemic was a pop quiz: nobody chose their ESG score with it in mind. The author compared the same companies before (2018–2019), during (2020–2021) and after (2022–2023), with balance-sheet, market and pay data (panel data analysis).
years treated as pandemic in the models
Sections 2.3, 3.3 and 4.3. Data from Refinitiv, Capital IQ and Brazil's securities regulator, CVM (Reference Form); studies 2 and 3 in US dollars. Records = company × year. The thesis does not state how many companies each study has; in Study 3, the 1,020 records in the descriptive statistics amount to about 170 companies a year (1,020 ÷ 6, our calculation).
Four simple ratios measure value, profit and the price of borrowed money
Each study measures performance with ratios between two numbers from the balance sheet or the stock market. Pick one and change the values of an imaginary company.
Imaginary company: the values are illustrative, only to show the calculation. The definitions come from Tables 3 and 5 of the thesis. Study 1 uses Q and ROA; Study 2, Q, ROA and ROE; Study 3, the cost of debt.
With a higher ESG score, executive pay tracks performance more closely
According to agency theory, executive pay should rise and fall with company performance, so that executives defend shareholders' interests. Among companies listed on B3, Brazil's stock exchange, this link was stronger the higher the ESG score. The pandemic did not strengthen it.
Table 4 (system GMM, six models, 441 records from 2018 to 2023). Pay = total executive compensation (salary, bonuses and options), in logs. The arrow thickness is a diagram: it shows the direction of the effect, not its size. Association, not causation.
A higher ESG score came with more market value and more profit
Comparing each company with itself over the years, the ESG score moved together with market value (Q) and return on assets (ROA). For return on equity (ROE), only a weak hint. The pandemic years, in turn, pulled value and profit down.
Table 7: fixed effects with robust errors, 488 records, R² from 17% to 19%. The thesis also reruns the analysis with another method (GMM) as a robustness test. The measures have different scales: compare direction and strength, not the size of the coefficients.
In the pandemic, the ESG score mattered even more for value and profit
To see whether ESG worked as protection in the crisis, the author added a term that measures the extra effect of the ESG score in 2020 and 2021. The pandemic alone knocked Q and ROA down; in companies with a higher ESG score, part of the drop was offset.
Tap a square to read the result.
Table 8 (fixed effects with robust errors, 1,018 records). Arrows: ↑ up, ↓ down, — no statistical effect. Stars: significance at 10% (*), 5% (**) and 1% (***). Association, not causation.
Higher ESG score, lower interest, but the pandemic did not widen that advantage
Lenders look at risk. Companies with a higher ESG score paid lower interest on their debt, for the total score and for each letter. In the pandemic years, however, the score brought no extra discount: the crisis weighed more than ESG.
Figure 6 (fixed effects with robust errors, eight models, 1,019 records, R² from 14% to 19%). Cost of debt = interest expense ÷ average debt. We show only direction and strength: the scales of the score and the cost do not allow reading the size of the effect. The thesis highlights governance; the pillars were not compared with a test.
Did the pandemic change how much ESG mattered? It depends where you look
Place your bet and flip the card. Answers from the tables of the three studies.
ESG landed on the good side every time; the crisis only strengthened it for value and profit
Each row is an outcome; each column, an effect: the ESG score in all years, the pandemic years and the extra effect of the ESG score in the pandemic. Tap a block.
See the coefficients as a table
Put together by us from Tables 4 (models 3 and 6), 7, 8 and Figure 6. For the cost of debt, "decreases" is good for the company. The first two rows measure how closely executive pay tracks performance.
ESG is also a financial decision
Managers
The author recommends bringing ESG into financial decisions, especially governance, to obtain cheaper credit and more resilience to crises.
Investors
For the author, the ESG score is a signal of resilience, more valuable in uncertain times, as the extra effect on value and profit during the pandemic showed.
Boards
Our reading: in B3 companies with higher ESG scores, executive pay tracked performance more closely, which matters to those who design pay policy.
Regulators
The author argues for rules that promote authentic and transparent ESG practices that contribute to the economy, society and the environment.
What this research does not say
- Six years (2018–2023): too short to see the long-term effects of ESG and of the pandemic. · according to the author
- Only listed Latin American companies, and Study 1 only Brazilian ones: the results may not hold for private, small or other regions' companies. · according to the author
- Scores from a single database (Refinitiv), which may have flaws, treated the same way in every sector. · according to the author
- Association, not causation; the models explain less than 20% of the variation, and we show direction and strength, not size. · our note
Credits
OLIVEIRA, Isaac Gezer Silva de. Essays of corporate finance and ESG. Doctoral thesis (Business Administration) — Mackenzie Presbyterian University, São Paulo, 2024. Advisor: Prof. Dr. Wilson Toshiro Nakamura.
The thesis was written in English, with support from CAPES (Brazil's federal agency for graduate education) and the Instituto Presbiteriano Mackenzie. This version simplifies the work for a general audience; the formulas, controls and full tables are in the original text.