Sustainable investing: ESG effectiveness and market value in OECD regions

Abstract

This research investigates the impact of Environmental, Social, and Governance (ESG) outcomes on the market valuation of companies in OECD nations, emphasizing the growing importance of sustainability in developed economies. Motivated by gaps in the existing literature, the study hypothesizes that ESG practices positively influence market valuation, mediated by financial performance indicators such as profitability and operational capability. Using a fixed effect model and a dataset of 1758 firms spanning 2011–2022, the analysis assesses both the direct and indirect effects of ESG performance on market valuation. The findings reveal that improved ESG performance significantly enhances market valuation and positively impacts profitability and operational capability. However, the mediating roles of these financial metrics indicate a nuanced relationship, with partial mediation effects observed. The study concludes that robust ESG strategies not only enhance market value but also contribute to operational effectiveness, offering actionable insights for policymakers, business leaders, and investors. These results underscore the critical role of ESG initiatives in fostering sustainable development and economic growth within OECD countries.

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