ESG Impact on Corporate Performance and Firm Value Across European Industries

This paper investigates the impact of Environmental, Social and Governance (ESG) scores on both firm value and corporate performance across ten sectors, focusing on European companies listed on stock exchanges from 2014 to 2023. The findings reveal significant industry-specific variations in how the environmental, social, and governance pillars affect both performance and market valuation. Positive correlations are found only in the Basic Materials sector, where higher ESG scores are linked to improved performance and increased firm valuation. In contrast, sectors such as Industrials, Consumer Cyclical, Consumer Non-Cyclical, Financials, Technology, Utilities, and Real Estate show declines in financial performance and reduced market valuation with higher ESG scores, with the Real Estate and Utilities sectors experiencing the most negative effects. Larger firms benefit marginally from ESG practices, particularly in Financial and Utility sectors, while leverage negatively impacts both performance and valuation. Liquidity and financial health, as measured by the current ratio and interest coverage ratio (ICR), correlate positively with firm performance and valuation, especially in capital-intensive sectors. This study emphasizes the importance of tailored ESG strategies to enhance firm value and competitiveness in a sustainability-focused market.

JEL Classification Codes: G32, M14, L25