Responsible and profitable: How does ESG agenda increases company’s evaluation

Abstract

This study evaluates the differences in environmental, social, and governance factors (ESG) affecting firm value by examining the rating for aggregate ESG and for each factor separately in developed and developing countries. Innovative industry companies as well as heavy industry companies are taken as examples. The paper demonstrates that the effect of ESG rating on the Tobin coefficient, taken as a proxy variable for firm value, differs across industries in developed and developing countries. Based on the observations of 4 207 firms from 35 countries over the period of 2016–2021, the findings demonstrate that the ESG ratings have a positive effect on firm value in developed countries and in innovative industries; the above-mentioned effects are persistent. It also shows that G score is important for the same groups of companies, however, for the firms registered in developing countries, an E score is sufficient in the short term. The paper concludes that lagged variables have a bigger impact on the results in heavy industries that demonstrate their concentration on internal operations, not on investors’ attention directed at the ESG factors. The findings are significant for scholars, managers and policymakers. Keywords: ESG score, ESG investment, firm value, impact evaluation, longitudinal study.