Sustainability practices and firm value. Evidence from a European industrial panel

Sustainability has influenced the consolidated relationships between economics and finance with increasing pervasiveness, acquiring greater relevance in terms of breadth and materiality. Given the role of driving force for change that firms play in economic and social development, they have been placed in front of new challenges and opportunities in terms of risk-return relationship with shareholders and stakeholders, in order to pursue, within their strategic declination, consistency between economical and financial performance and social issues, and strengthen credibility, reputation, and legitimacy. Therefore, recalling the firm’s needs to build and preserve consensus around its initiatives, and, ensure its survival in a highly competitive context, sustainability has been grafted onto governance processes, decision-making processes, and strategies. Sustainability issues have become a new theme for academics in the field of management, and several contributions covering different aspects have been published. Scholars highlight that (i) sustainability can be seen as an intangible resource able to enhance firm’s expected cash flows and/or reduce their variability and (ii) investors appreciate additional and complementary disclosure provided on sustainability issues with positive effects on stock prices. In the light of the above, this paper investigates the association between ESG performance and firm value, using a multiple regression analysis on a sample of 189 European listed companies based on Reuters Eikon data from 2012 to 2020. We find a positive and significant relationship between ESG score and firm value, providing implications for policymakers and stakeholders, and contributing to enriching the literature on the influence of ESG variables on firm strategies. Notwithstanding the results of our analysis, it is necessary to conclude that, due to different accounting methodologies across rating agencies and data providers, it is difficult to draw a robust conclusion on the topic and that the relationship between firm value and ESG performance is complex and needs more research.