The ESG reporting of EU public companies. Does the companys capitalization matter?


Sustainable finance is not the same as green finance understood as financing a low-carbon economy. It is a broader concept that includes elements related to the functioning of financial markets as such and their role in sustainable development. The determinants of the activities of investors and enterprises are part of sustainable finance on the financial market and, more specifically, the consequences of long-term investment horizons for the functioning of a sustainable economy. Thus, sustainable finance focuses on the importance of long-term investments that include environmental, social, and governance factors (ESG).

The European Union requires large companies to disclose information on the way they operate and manage social and environmental challenges. Currently, large public-interest companies (with more than 500 employees) have to publish information related to environmental, social, and governance matters (ESG). In April 2021 the EU adopted a proposal for a Corporate Sustainability Reporting Directive, which introduces more detailed reporting requirements for all large companies and all companies listed on regulated markets.

Word cloud relating to ESG


sustainable finance, ESG, ESG reporting, market capitalization, EU public companies

Research question

The aim of the study is to examine the ESG disclosure by public companies domiciled in EU member states. The authors want to answer whether the ESG reporting by public companies that focus mainly on achieving sustainable finance goals is connected with their market capitalization. One can assume that the largest stock companies are subject to many formal and legal requirements, as well as the information policy of ESG components. The research hypothesis assumes that the quality of ESG reports depends on the company’s market capitalization and the ESG scores have a positive and strong effect on the market value of companies measured by their capitalization.

Main method

The research includes over 15,000 companies listed on 27 European stock exchanges, broken down into so-called “old” EU member states (EU-14) and “new” states (EU-13). The data are obtained from the Refinitiv Eikon database and the period covers years from 2002 to 2019. The aim of the research is to determine: (i) the share of public companies reporting ESG in the total number of public companies; (ii) completeness of their ESG index; (iii) the relationship between the ESG disclosure by public companies and their market capitalization.

According to Ohlson’s (1995) model, which is a strong theoretical framework for evaluating market value based on accounting basic variables (book value and profit), and other types of information that may be relevant in assessing company value, we estimate the following regression model:

Regressive model

where: MC is the market capitalization (the natural logarithm), ESG – the ESG index,  BV – the book value of equity (the natural logarithm), ROA – return on assets, LEV – the financial leverage (the ratio of the book value of total debt to the book value of equity), and COUNTRY – the dummy variable that takes a value of 1 for German and 0 for other countries. 

All variables are measured at the end of the fiscal year. To mitigate the potential effects of outliers, we winsorize the data at the 1ts and 99th percentile levels. Additionally, following an existing approach, we exclude the cases of negative book values of equity. Our final sample consists of an unbalanced panel of 50,173 firm-year observations representing 4,521 public companies listed on 13 European markets. We use ordinary least squares (OLS) specifications.

Table 1- ESG-index reporting versus financial reporting and market capitalization by companies on the EU markets.

Table 1- ESG-index reporting versus financial reporting and market capitalization by companies on the EU markets.

Main results

A thorough analysis of the ESG disclosures indicates that currently there is no proper practice in this area on the European markets. Among the analysed companies, financial reporting did not go hand in hand with reporting on ESG score and its components. Although there is a diverse approach to disclosing ESG information on the EU-14 markets, generally, three important conclusions can be drawn from the study.

  • Firstly, only 50% of companies listed on EU-14 markets and scarcely 5% of companies from EU-13 markets reported ESG scores in any of the analysed years, 32% and 3% for at least ten years, respectively.
  • Secondly, the market penetration of the ESG-index (the share of companies in total market capitalization) in EU-14 markets was 87%. Importantly, it turned out that in EU-13 markets, this share was about 12%.
  • Thirdly, there is a positive relationship between the quality of ESG reports and the company’s market capitalization, and ESG scores have a positive and statistically significant effect on the market value of companies.

Table 2- Pearson correlation coefficients between the variables. 

Table 2- Pearson correlation coefficients between the variables.

Table 3- The impact of ESG on market capitalization (MC).

Table 3- The impact of ESG on market capitalization (MC).

***, ** Denote significance at the 1%, and 5%, respectively

Main conclusion

Our research was inspired by the changes taking place in the global economy today related to the widespread implementation of the principles of sustainable development. We found that the company’s ESG performance positively affects its market capitalization. Therefore, it can be assumed that in the European Union ESG reporting by public companies is of significant importance for investors.

We are aware of the limitations that may have influenced the results of our research. ESG reporting by public companies has a relatively short history and after conducting our preliminary analysis, we had to limit the research period to 2002–2019. Considering the share of capitalisation of companies that prepare ESG reports in the total capitalisation of the individual exchanges, there is a clear dominance of large, listed companies, confirming the hypothesis that ESG reports are prepared mainly by large entities. The obtained results allow us to formulate conclusion that investors expect companies to present ESG reports and ESG reporting companies tend to be valued higher by the market. Our research may be a starting point for further studies carried out in the coming years, as the number of companies reporting ESG is constantly growing.



  • Małgorzata Janicka, Ph.D. Associate Professor, Department of International Finance and Investment, University of Lodz, Poland;
  • Artur Sajnóg, Ph.D. Assistant Professor Department of International Finance and Investment, University of Lodz, Poland,
Last modified: 2022-03-15