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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 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 especially 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, Societal, Goovernance (ESG) criteria. The interest of companies in the ESG framework has become more intense in the recent years, as they recognize that appart from an improved reputation, ESG criteria can add value to them and help to become more effective in their functioning. However, especially 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 what extent 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 28 Europe ESG Leaders 50 Index), covering a wide range of sectors, namely Automobile, Consumer Products, Energy, Financial Services, Manufacturing etc., first, we 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 if compared to other large European corporations. Our results show that such a connection seem 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 2209, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:2209
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    References listed on IDEAS

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    1. Caterina De Lucia & Pasquale Pazienza & Mark Bartlett, 2020. "Does Good ESG Lead to Better Financial Performances by Firms? Machine Learning and Logistic Regression Models of Public Enterprises in Europe," Sustainability, MDPI, vol. 12(13), pages 1-29, July.
    2. 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.
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    Keywords

    ESG; STOXX Europe; Financial Performance; Capital Structure; Profitability; Valuation;
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