ESG Score and Firm Performance: A Comparative Analysis of Nordic and European Companies

This study investigates how environmental, social, and governance (ESG) performance influences firm-level financial outcomes using a panel of approximately 24,500 firm-year observations from 2015 to 2024, based on Refinitiv ESG scores across 12 industries and multiple European countries. To capture institutional heterogeneity, the analysis separates Nordic and non-Nordic firms and applies fixed-effects models for the latter and random-effects models for the former, as supported by Hausman diagnostics. The results reveal that ESG performance is positively associated with firm value, while its effects on short-run accounting returns differ across regions. Specifically, ESG scores are associated with a negative and statistically significant impact on ROA and ROE in the non-Nordic subsample, suggesting transitional adjustment costs and delayed financial realization. For financing outcomes, the study shows that ESG engagement reduces the Weighted Average Cost of Capital (WACC) in both samples, though mechanisms differ. In Nordic markets, a 10-point increase in ESG score corresponds to an estimated 4.2-basis-point reduction in WACC, reflecting the benefits of mature disclosure systems. In contrast, governance emerges as the only ESG pillar capable of reducing financing costs in non-Nordic countries. These region-specific patterns confirm that institutional maturity and investor orientation shape the financial materiality of ESG practices. The novelty of this study lies in jointly modeling (i) positive valuation effects, (ii) negative short-run profitability adjustments, and (iii) financing-cost reductions within a unified ESG framework while explicitly distinguishing governance regimes across Europe. The findings offer new evidence on how disclosure quality and governance structures moderate ESG’s economic impact and suggest that strengthening governance transparency can help firms in less mature ESG environments realize capital-cost advantages.