The Price of Being Sustainable: ESG Scores and the Financial Risk Appetite of Firms
Keywords
Loading...
Authors
Issue Date
2025-07-08
Language
en
Document type
Journal Title
Journal ISSN
Volume Title
Publisher
Title
ISSN
Volume
Issue
Startpage
Endpage
DOI
Abstract
This paper examines how corporate ESG performance influences financial risk-taking, with a focus on the moderating role of firm size. Using a two-way fixed effects panel regression on a dataset of 859 publicly listed U.S. and European firms over 2010-2023, the study finds that higher ESG scores are generally associated with lower financial risk-taking, especially among larger firms. In contrast, for smaller firms, ESG engagement may increase risk-taking, potentially reflecting symbolic or reputation-driven adaptation of sustainability practices. Robustness checks with alternative risk proxies and subgroup analyses across ESG pillars and industries confirm that ESG’s risk impact is highly context dependent. These results suggest that while ESG can function as a form of reputational or moral insurance that stabilizes corporate behavior, its effects vary depending on firm size and implementation sincerity. The findings offer valuable implications for investors, policymakers, and corporate managers seeking to align sustainable practices with prudent financial strategies in mature markets.
Description
Citation
Supervisor
Faculty
Faculteit der Managementwetenschappen