Cross-sector comparison of the impacts of high and low ESG scores on company valuations

Abstract

This thesis, titled Cross-sector comparison of the impacts of high and low ESG scores on company valuations, investigates how corporate sustainability performance affects firm valuation in the European context. With the growing prominence of Environmental, Social and Governance (ESG) considerations in investment decision-making and regulation, the study asks whether ESG scores influence valuation metrics, and whether these effects differ across sectors. The analysis is based on firms from the STOXX Europe 600 index over 2014-2023. ESG data are sourced from Refinitiv, while valuation measures include Price-to-Book (P/B), Market Capitalization (MCap), and Enterprise Value (EV). The dataset is unbalanced due to firm entry and exit, reflecting the dynamics of the European equity market. To ensure robustness, the study applies panel regressions with sectoral and temporal fixed effects, and distinguishes between firms with high versus low ESG performance to capture potential non-linear impacts. Findings indicate that higher ESG scores are generally associated with stronger valuation outcomes, but the relationship is not uniform. In capital-intensive sectors such as Energy and Utilities, ESG performance is linked to a significant valuation premium, suggesting that investors reward firms managing environmental and regulatory risks effectively. By contrast, consumer-oriented sectors show weaker or insignificant relationships, implying that ESG functions more as a reputational factor than a financial driver. Overall, the results demonstrate that the valuation impact of ESG is sector-dependent rather than universal. For investors, this highlights the importance of tailoring ESG integration strategies to industry characteristics instead of applying them uniformly. For policymakers, the findings reinforce the need for consistent and comparable ESG disclosures to strengthen market efficiency and limit greenwashing. This thesis, titled Cross-sector comparison of the impacts of high and low ESG scores on company valuations, investigates how corporate sustainability performance affects firm valuation in the European context. With the growing prominence of Environmental, Social and Governance (ESG) considerations in investment decision-making and regulation, the study asks whether ESG scores influence valuation metrics, and whether these effects differ across sectors. The analysis is based on firms from the STOXX Europe 600 index over 2014-2023. ESG data are sourced from Refinitiv, while valuation measures include Price-to-Book (P/B), Market Capitalization (MCap), and Enterprise Value (EV). The dataset is unbalanced due to firm entry and exit, reflecting the dynamics of the European equity market. To ensure robustness, the study applies panel regressions with sectoral and temporal fixed effects, and distinguishes between firms with high versus low ESG performance to capture potential non-linear impacts. Findings indicate that higher ESG scores are generally associated with stronger valuation outcomes, but the relationship is not uniform. In capital-intensive sectors such as Energy and Utilities, ESG performance is linked to a significant valuation premium, suggesting that investors reward firms managing environmental and regulatory risks effectively. By contrast, consumer-oriented sectors show weaker or insignificant relationships, implying that ESG functions more as a reputational factor than a financial driver. Overall, the results demonstrate that the valuation impact of ESG is sector-dependent rather than universal. For investors, this highlights the importance of tailoring ESG integration strategies to industry characteristics instead of applying them uniformly. For policymakers, the findings reinforce the need for consistent and comparable ESG disclosures to strengthen market efficiency and limit greenwashing.