The impact of Corporate Sustainability Practices on Financial Performance: A Comparative Analysis of European Firms

Abstract

This study examines the impact of corporate sustainability (ESG) practices on firm financial performance among publicly listed Nordic firms from 2012 to 2022. The analysis includes 142 firms and 1,395 firm-year observations (1,392 for stock-return models), using ESG and finan-cial data from the LSEG Workspace database. Panel regression models are employed, with fixed- or random-effects estimations selected based on Hausman tests. The study employs appropriate panel data techniques, with robust standard errors and winsorized variables to mitigate outlier effects. Control variables such as firm size, age, and leverage are also incor-porated. The results show that overall ESG performance has a positive and significant effect on market-based performance (Log Tobin’s Q), suggesting that firms with stronger sustaina-bility engagement are valued more highly by investors. However, ESG has no consistent im-pact on accounting-based indicators such as return on assets (ROA), return on equity (ROE), and operating profit margin (OPM). Robustness checks using ESG pillar scores reveal that the governance pillar exerts the strongest and most consistent influence on firm performance, while environmental and social dimensions show weaker or mixed effects. Overall, the find-ings suggest that ESG performance contributes more to enhancing firm market valuation than to improving short-term accounting outcomes. The study highlights the role of govern-ance practices in linking sustainability to firm value and provides insights for managers and policymakers to strengthen ESG disclosure, comparability, and long-term strategic integration within Nordic markets.