ESG Performance and Enterprise Value: Do Firms with Stronger ESG Performance Have Higher Valuation Ratios?

This report investigates the relationship between the ISS ESG Performance Score (a normalized version of the ISS ESG Corporate Rating) and two valuation ratios from the ISS Economic Value Added (EVA) framework. Notable features of the research design include:
1. A large global sample of companies observed over a five-year window (2017-2022); and
2. The use of regression analysis to control for a company’s size and other factors which may affect both ESG performance and enterprise value.
Controlling for a company’s size, industry, and country of domicile, the study finds a positive relationship between the ESG Performance Score and the two valuation ratios.
This relationship remains positive when additional controls for profitability and balance sheet strength are considered.
The positive relationship also holds in the specific context of the year 2022.