ESG Performance and Firm Value: Evidence on Nonlinear Effects and Individual ESG Dimensions from European Union Listed Companies

Abstract

This study examines both the linear and nonlinear relationship between overall Environmental, Social, and Governance (ESG) performance and firm market value, while also comparing the effects of the Environmental, Social, and Governance dimensions in publicly listed companies from the European Union. The analysis is based on an unbalanced panel of 1706 non-financial listed firms covering the period 2011–2025. Firm value is primarily measured by Tobin’s Q, with the Price-to-Book ratio and Return on Assets (ROA) used for robustness analysis. The results indicate a significant U-shaped relationship between overall ESG performance and firm value, suggesting that the value-enhancing effects of ESG emerge only after firms achieve sufficiently high sustainability performance. In contrast, the individual Environmental, Social, and Governance dimensions in most cases do not exhibit significantly different effects on firm market value. Additional subsample analyses reveal that the nonlinear relationship is more pronounced among Western European firms and companies with lower greenhouse gas emissions intensity. The findings suggest that investors primarily evaluate firms based on their overall sustainability profile rather than individual ESG dimensions. The study contributes to the ESG literature by providing further evidence of the nonlinear nature of the ESG–firm value relationship and by comparing the explanatory power of aggregated and disaggregated ESG measures within the European Union’s harmonized sustainability reporting environment.