Esg commitment and compliance: sustainability and risk exposure

Abstract Transitioning to sustainable business models has become a critical challenge for companies globally. While some firms proactively align their strategies with the UN Sustainable Development Goals, others adopt sustainability measures primarily in response to regulatory pressures. This study investigates whether financial markets recognize and value differing approaches to sustainability by clustering listed companies based on the evolution of their ESG scores. Focusing on companies within the S&P Index, we identify two distinct clusters: ESG Pioneers, firms with consistently high ESG scores since 2013, and ESG Chasers, firms that have significantly improved their ESG performance over time. To assess the financial implications of these strategies, we analyze excess returns across the clusters, using the Fama-French framework. Our findings highlight diverse corporate approaches to sustainability, shedding light on the costs and benefits of sustainable business practices in a competitive environment.