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The Impact of ESG Performance on the Financial Performance of European Area Companies: An Empirical Examination

Author

Listed:
  • Phoebe Koundouri
  • Nikitas Pittis

    (University of Piraeus, Greece)

  • Angelos Plataniotis

Abstract

Achieving climate neutrality, as dictated by international agreements such as the Paris Agreement, the United Nations Agenda 2030 and the European Green Deal, requires the conscription of all parts of society. The business world and, in particular, large enterprises have a leading role in this effort. Businesses can contribute to this effort by establishing a reporting and operating framework according to specific Environmental, Social and Governance (ESG) criteria. The interest of companies in the ESG framework has become more intense in the recent years, as they recognize that apart from an improved reputation, ESG criteria can add value to them and help them to become more effective in their functioning. In particular, large European companies are legally obligated by the Non-Financial Reporting Directive (NFRD-Directive 2014/95/EU) to disclose non-financial information on how they deal with social and environmental issues. In the literature, there are discussions on the extent to which a good ESG performance affects a company's profitability, valuation, capital efficiency and risk. The purpose of this paper is to examine empirically whether a relationship between good ESG performance and the good financial condition of companies can be documented. For a sample of the top 50 European companies in terms of ESG performance (STOXX Europe ESG Leaders 50 Index), covering a wide range of sectors, namely Automobiles, Consumer Products, Energy, Financial Services, Manufacturing, etc., we first reviewed their reportings to see which ESG framework they use to monitor their performance. Next, we examined whether there is a pattern of better financial performance compared to other large European corporations. Our results showed that such a connection seems to exist at least for some specific parameters, while for others, such a claim cannot be supported.

Suggested Citation

  • Phoebe Koundouri & Nikitas Pittis & Angelos Plataniotis, 2022. "The Impact of ESG Performance on the Financial Performance of European Area Companies: An Empirical Examination," DEOS Working Papers 2218, Athens University of Economics and Business.
    • Handle: RePEc:aue:wpaper:2218
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    References listed on IDEAS

    as
    1. Tim Verheyden & Robert G. Eccles & Andreas Feiner, 2016. "ESG for All? The Impact of ESG Screening on Return, Risk, and Diversification," Journal of Applied Corporate Finance, Morgan Stanley, vol. 28(2), pages 47-55, June.
    2. Amir Amel-Zadeh & George Serafeim, 2018. "Why and How Investors Use ESG Information: Evidence from a Global Survey," Financial Analysts Journal, Taylor & Francis Journals, vol. 74(3), pages 87-103, July.
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    Cited by:

    1. Müller-Stewens, Günter & Stonig, Joachim, 2023. "Auf dem Weg zum Stakeholder-Kapitalismus: Merkmale und Konsequenzen einer sich verändernden institutionellen Logik," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 77(4), pages 316-333.
    2. Marta Szczepańczyk & Paweł Nowodziński & Adam Sikorski, 2023. "ESG Strategy and Financial Aspects Using the Example of an Oil and Gas Midstream Company: The UNIMOT Group," Sustainability, MDPI, vol. 15(18), pages 1-24, September.
    3. Yu Zhang & Chiping Chen & Xizheng Zhang, 2024. "The Impact of Environmental, Social, and Governance Performance on the Total Factor Productivity of Textile Firms: A Meditating-Moderating Model," Sustainability, MDPI, vol. 16(16), pages 1-19, August.
    4. David Ratigan & Peter A. Zaleski, 2024. "The Drucker indexes and profitability: a first look," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 59(2), pages 78-85, April.
    5. R. David Ratigan & Peter A. Zaleski, 2024. "Managerial Performance and Economic Performance in the Technology Sector," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 52(2), pages 117-130, September.
    6. Maha Abu Hussain & Maha Faisal Alsayegh & Helmi A. Boshnak, 2024. "The Impact of Environmental, Social, and Governance Disclosure on the Performance of Saudi Arabian Companies: Evidence from the Top 100 Non-Financial Companies Listed on Tadawul," Sustainability, MDPI, vol. 16(17), pages 1-26, September.
    7. Irene Aldridge & Payton Martin, 2022. "ESG In Corporate Filings: An AI Perspective," Papers 2212.00018, arXiv.org.

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    More about this item

    Keywords

    ESG; STOXX Europe; financial performance; capital structure; profitability; valuation;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • Y1 - Miscellaneous Categories - - Data: Tables and Charts

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