Sustainable Corporate Development: Shareholder Value and Environmental, Social and Governance Risk Ratings in Central European Capital Markets

Krzysztof Kluza () and Anna Chmielewska
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Krzysztof Kluza: Department of Quantitative Economics, Warsaw School of Economics, Al. Niepodleglosci 162, 02-554 Warszawa, Poland
Anna Chmielewska: Department of Quantitative Economics, Warsaw School of Economics, Al. Niepodleglosci 162, 02-554 Warszawa, Poland

Sustainability, 2025, vol. 17, issue 21, 1-20

Abstract: This study analyzes how environmental, social and governance (ESG) factors affect the valuation of listed companies in Central Europe. It therefore validates the financial incentives for corporates in this region to embark on or continue with sustainable business models. It discusses the theoretical foundations of the impact of ESG factors on company value, examining both firm- and investor-centered approaches. The empirical section analyzes the main market valuation indicators based on earnings per share, book value, enterprise value and EBITDA for all companies listed on stock exchanges in the region for which Sustainalytics ESG risk ratings were calculated. The econometric modeling uses the generalized least squares method. The research evidences that companies with strong ESG risk ratings, reflecting sustainable business models, trade at a premium vs. their ESG-weaker peers. This suggests that investors place significant value on sustainability and effective ESG risk management practices. Additionally, this study reveals a non-linear relationship between ESG ratings and market valuations. While investors may show less differentiation among companies with low ESG risk, they impose substantial penalties on those with poor ESG management. From a practical perspective, the findings support investing in ESG risk management and corporate governance as effective strategies to raise company valuation and generate financial benefits for shareholders. The study also indicates that ESG ratings can be applied in forecasting company valuations, which is an important consideration for investors. This study makes an original contribution by providing insights focused on Central European markets, where empirical research on sustainability standards remains in the early stages of development.

Keywords: ESG; risk; valuation; climate change; sustainable business models (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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