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Does the world need more traditional energy? A comparative analysis of ESG activities, free cash flow, and capital market implications

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  • Li, Huijing
  • Clancey-Shang, Danjue
  • Fu, Chengbo
  • Li, Tianze

Abstract

In this paper, we examine the ESG performance of traditional energy firms relative to their non-energy counterparts. Our findings reveal that energy firms outperform non-energy firms in ESG metrics. Within the energy sector, firms in the USA and Europe lead in ESG performance, while those in Japan, Australia, India, and China trail. These results hold even after controlling for other firm characteristics and remain robust to Propensity Score Matching (PSM) analysis. Additionally, we identify financial flexibility as a key driver of this relationship. Specifically, the positive association between being an energy firm and higher ESG performance is more pronounced in firms with greater net cash flow.

Suggested Citation

  • Li, Huijing & Clancey-Shang, Danjue & Fu, Chengbo & Li, Tianze, 2025. "Does the world need more traditional energy? A comparative analysis of ESG activities, free cash flow, and capital market implications," International Review of Financial Analysis, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:finana:v:99:y:2025:i:c:s1057521925000067
    DOI: 10.1016/j.irfa.2025.103919
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    More about this item

    Keywords

    ESG; Energy firms; Net cash flow; Propensity score matching; Sustainability;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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