Research-Thesis ESG Criteria and Financial Performance of Listed Airlines.

Abstract

This research examines the financial results of listed airlines in relation to their Environmental, Social, and Governance (ESG) performance from 2018 to 2022. The analysis of investment and corporate strategy now heavily depends on ESG factors because they show how companies handle risks and sustainability challenges to build enduring value. The airline industry provides an appropriate setting to evaluate ESG integration effects on financial performance because of its high carbon emissions and volatile market conditions and regulatory environment and high operational costs.

The study analyzes ESG-based portfolios of airlines (Good ESG, Bad ESG, and Good–Bad spreads) using established asset pricing models—CAPM, Fama–French three- and five-factor models, and momentum-augmented versions—together with Sharpe and Sortino ratios to evaluate risk-adjusted performance.

The research findings show that airlines with better ESG scores did not achieve superior performance than airlines with lower ESG scores. Portfolio alphas were insignificant across all models, and the Good–Bad ESG spreads did not yield positive abnormal returns.The Sharpe and Sortino ratios showed no evidence of superior risk-adjusted performance for high-ESG airlines. The Environmental pillar received a detailed evaluation which supported these results.

The research shows that ESG performance does not produce better short-term returns in the airline industry yet delivers long-term strategic advantages and reputational benefits and risk management advantages. The research findings enhance the ESG–finance literature while providing useful information for investors and policymakers and airline managers who need to manage financial performance alongside sustainability targets.