Value Relevance of ESG Scores: Evidence from European Stock Exchange Markets

Abstract

The research is analyzing the value relevance of other comprehensive income and the environmental, social and governance (ESG) scores in regard to the share price in Europe (Italy, France, Germany and Spain). As part of the international and continuous developing capital markets, the disclosure of comparable financial information, based on global and quality standards, such as International Financial Reporting Standards (IFRS), is a key aspect for capital providers (investors, banks and other creditors) in making their investment decisions or management risk assessment. Depending on the category of financial information users, the relevance of the information provided by comprehensive income and other comprehensive income can be perceived differently, and thus managers are interested in overall performance, while investors are interested in return on investment and creditors in the company's performance from a solvency perspective. In the last years, the evolution of capital markets proved that besides the companies' performance respectively financial information provided, an important role in stakeholders' decisions is performed by the nonfinancial information, respectively ESG performance. The association between ESG, other comprehensive income, and share price was analyzed through the Ohlson price model, considering the impact of financial and non-financial information. The sample analyzed is through a period of 5 years 2017-2021 and the data was collected through Thomson Reuter's Eikon Database. The research has concluded that there is a positive and significant influence of main ESG scores on the share price but not in the case of other comprehensive income. And the value relevance of ESG scores is reflected on the investors' behavior and their vision over sustainable investments.

Keywords

• esg scores
• value relevance
• other comprehensive income
• share price
• business ethics