The Economic Performance of European Stock Corporations: Does Sustainability Matter?

Abstract

Concerning the relationship between sustainability and economic performance, this paper examines econometrically the effect of environmental and social performance on the shareholder value of European stock corporations. The shareholder value is measured as the average monthly stock return for the period from 1996 to 2001. The sustainability performance is measured independently by both an evaluation of the environmental and social risks of the industry to which the company belongs and by an evaluation of the environmental and social activities of a company relative to the industry average. Methodically, we apply two-stage econometric approaches which include recent insights from empirical finance. The most important result is that a higher environmental sector performance has a significantly positive influence on the shareholder value. In contrast, a higher social sector performance has a negative influence on the average monthly stock returns. This effect is partly less significant, however. The variables of the corporate environmental or social activities relative to the industry average have no significant effect on the shareholder value.