Firm Value: Does ESG matter?

Abstract

Investments in companies worldwide are increasing dramatically, with Europe presenting a wide range of countries with different regulatory frameworks governing ESG (Environmental, Social, Governance) practices. This thesis examines the impact of ESG scores on the value of European Firms, shedding light on how these considerations influence the investment decisions before and during the Covid-19 crisis. This study analyzes panel data of 1223 non-financial European firms with a duration of twelve years from 2011 until 2022. It reveals that ESG Score, Environmental Pillar Score and Governance Pillar Score negatively impact the firm value prior to the pandemic, while Social Pillar Score has no significant effect. During the pandemic, only firms investing in Environment have a positive impact on firm value. Additionally, Covid-19 negatively affects firm value when companies invest in Environmental Pillar Score. These findings act as a guide for investors to make a well informed decision about the allocation of funds and highlight the relationship between the firm value and ESG Score.