The effect of sustainable business practices on profitability. Accounting for strategic disclosure

Abstract This work tackles from an empirical perspective the widely debated relationship between sustainability in business practices and profitability, focusing on a sample of listed European firms. To measure extent sustainable at firm level, Comprehensive Environmental, Social, Governance (ESG) score is proposed. The indicator, computed using Mazziotta‐Pareto method, combines qualitative ratings adherence to ESG standards with quantitative observations data disclosure. Firms failing pursue full disclosure are penalized. Focusing constituents Euro Stoxx 300 index, dynamic panel model implemented, where profitability explained by indicator. results show that reduces profitability. These findings line strand literature highlights role strategic information part Strategic occurs as combination greenwashing social washing, firms overstating their positive behaviors. integration within successful models thus remains relevant societal problem. current EU policy framework discussed our findings.