From ESG Performance to Sustainable Business Exposure: ESG Pillars, SDG-Related Revenue and Market Valuation among 3,000 Global Firms
Keywords:
ESG pillars; SDG-related revenue; market valuation; price-to-earnings; price-to-sales; ESG-elite firmsAbstract
Environmental, social, and governance (ESG) investing has become a mainstream component of institutional decision-making, yet most empirical studies test the relationship between ESG performance and firm valuation by pooling the entire cross-section of rated firms, from laggards to leaders, and by relying on a single composite ESG score. This study instead examined whether the composition of ESG performance across its three pillars, together with a firm’s exposure to Sustainable Development Goal (SDG)-related revenue, is associated with market valuation specifically among firms at the upper end of the global ESG distribution, where composite scores are compressed and any residual variation in valuation must originate from something other than the aggregate score. A cross-sectional sample of the 3,000 highest Bloomberg-ESG-scored firms worldwide, drawn from a global universe of 11,643 rated firms and spanning 56 stock exchanges, was analyzed using ordinary least squares regression with exchange-group fixed effects and cluster-robust standard errors. Two valuation multiples were modeled in parallel: price-to-earnings, an earnings-based multiple, and price-to-sales, a revenue-based multiple. The composite ESG score was negatively associated with price-to-earnings but positively associated with price-to-sales, a sign reversal driven primarily by the Social and Environmental pillars; the Governance pillar was not independently significant in either specification. Net SDG-aligned revenue exposure was not significantly associated with either valuation measure, and its interaction with composite ESG performance was also not significant, indicating that this real-economy exposure measure does not yet carry incremental valuation-relevant information within the ESG-elite segment. These findings indicate that, once a sample is restricted to the top of the global ESG distribution, valuation is shaped more by the pillar-level composition of ESG performance and by the specific valuation multiple examined than by the aggregate ESG score in isolation, with implications for how investors, corporate sustainability strategy, and future ESG-valuation research interpret composite ESG ratings.
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