An Empirical Investigation into the Impact of Environmental, Social, and Governance (ESG) Reporting on Firm Value: A Cross-Sector Analysis.

Abstract

This study investigates the correlation between Environmental, Social, and Governance (ESG) scores and firm value across major sectors in the United States, including energy, technology, healthcare, and consumer staples staples during the period from 2012 to 2022. The study employs Tobin's Q as proxy for firm value. Preliminary descriptive analysis provides valuable insights into sector-specific ESG adherence, while regression analyses substantiate a positive association between ESG scores and firm value. Interestingly, while environmental and governance components of ESG significantly influence firm value, social components yield an insignificant impact, possibly due to strict U.S. regulations. Sector-specific analysis reveals distinct dynamics, with the healthcare and energy sectors showcasing unique and noteworthy ESG-firm value relationships. By further disaggregating ESG effects and introducing an alternative dependent variable for robustness, this research underscores the strategic importance of ESG practices, suggesting the need for a tailored approach to enhance sustainable corporate value.