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Can Corporate Sustainability Drive Economic Value Added? Evidence from Larger European Firms

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  • Tiago Cruz Gonçalves

    (ADVANCE/CSG, ISEG, Universidade de Lisboa, Rua do Quelhas, 6, 1200-781 Lisboa, Portugal)

  • Diogo Louro

    (ISEG, Universidade de Lisboa, Rua do Quelhas 6, 1200-781 Lisboa, Portugal)

  • Victor Barros

    (ADVANCE/CSG, ISEG, Universidade de Lisboa, Rua do Quelhas, 6, 1200-781 Lisboa, Portugal)

Abstract

This study analyses the association between firms’ sustainability and economic performance in Europe, considering the channels of margin and turnover. The sample is composed of firms listed in the STOXX Europe 600 Index from 2012 to 2020. The sustainability performance is captured by the combined and individual ESG scores from Refinitiv, and dynamically tested with proxies of economic performance, including economic value added, return on firms’ assets and its components, margin and turnover. The methodological approach comprises different panel data specifications and tackles the potentially unobserved, time-invariant heterogeneity, endogeneity concerns, and reverse causality biases. Our findings point to a strong positive association between firms’ sustainability and economic performance in Europe, although the individual ESG forces are not at play with the same intensity. The environmental pillar is the one that is systematically associated with better economic performance across all estimations. The influence of sustainability performance on economic performance is also channeled by both profit margin and turnover. We find that a 1% improvement in the ESG score yields an increase in the economic value added of 0.08%, EVA over revenues. In general, our findings point to a shift from the conventional business model perspective to the incorporation of a core sustainability proposition and agenda that brings advantages and drives economic performance.

Suggested Citation

  • Tiago Cruz Gonçalves & Diogo Louro & Victor Barros, 2023. "Can Corporate Sustainability Drive Economic Value Added? Evidence from Larger European Firms," JRFM, MDPI, vol. 16(4), pages 1-20, March.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:4:p:215-:d:1110574
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    References listed on IDEAS

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