The Influence of Firms ESG Initiatives on Firm Value: An Analysis of Select European Firms

Abstract

.

The goal of this chapter is to analyze how ESG disclosures of European firms impact their value measured with the proxy for Tobin's Q and how such a relationship is manifested across different industries and economic sectors. This study contributes to the literature on sustainability and firm value by being a European multi-country study that incorporates novel firm-level sustainability scores and country-level variables to explain value creation in the corporate sector. The empirical analysis is conducted using panel data from 19 European companies from 2010 to 2020. The findings show that any of the three pillars of sustainability (environmental, social, and governance) individually are positively associated with firm value. Firms from environmentally friendly industries will see a better response in market perception as a result of improvements in their sustainability scores than companies in less environmentally friendly industries. Sustainability is a value-creation tool for the people, the planet, and also for the firm. Investors reward companies for being sustainable. Our study shows how companies can generate value by addressing important social, environmental, and governance challenges. Our research opens doors for important future research and policy changes relating to sustainability and perceived value.