The Effects of COVID-19-Period Sustainability Practices: Gains for the Good, No Punishment for the Unethical

This paper explores the impact of sustainability practices (ESG and greenwashing) on profitability, with a special focus on crises, in particular COVID-19. We analyze the post-crisis profitability of sustainable firms, distinguishing between country groups (developed/developing and high voice and accountability/low voice and accountability). We run fixed effects difference-in-differences regressions on a dataset comprising 3832 to 14,652 firm-year observations from 47 stock exchanges. Evidence suggests that firms with a higher ESG during COVID-19 achieved higher profitability afterwards. Environmental score (E) contributed the most to profitability. Although greenwashing improved post-crisis operational performance, its effect on market value is mixed. Countries exhibited different dynamics regarding the sustainability-profitability nexus: firms in developed countries and countries with greater voice and accountability achieved higher post-crisis profitability. In the post-crisis recovery period, this pattern reversed (for ESG) or disappeared (for greenwashing). Overall, companies investing in ESG (E, S, G) during COVID-19 gained substantial benefits, but those engaging in greenwashing were not penalized much, especially those in developed countries and countries with greater voice and accountability. These findings show how institutional and stakeholder-driven pressures can play a critical role in the sustainability-profitability relationship, engendering important implications for managers and policymakers.