Water sins, social virtues: how social performance insulates firms against water usage penalties

Abstract Water scarcity has become a material financial risk, yet extant research treats corporate water use as a purely environmental issue. The present study employs stakeholder theory as a theoretical framework and as a heuristic device to test the hypothesis that strong social-performance scores insulate high-water-using firms from valuation penalties. Using data from 11,000 companies worldwide between 2015 and 2023, which includes Refinitiv ESG ratings, CDP water data, and verified financial information, we compare profitability, growth, and market value based on water usage and social scores, while also considering factors like company size, industry, region, year, and other ESG aspects. Our findings demonstrate that this study is the first to quantify the buffering degree of social performance against water-related financial penalties across a comprehensive multi-industry sample. It has been demonstrated that high-water firms in the top social quartile exhibit profit margins that are 21.7% higher and market capitalizations that are 30% larger than their peers with weak social ratings. Interaction models show that the water–value penalty falls by 60% for socially responsible firms, especially in the utilities and food processing sectors. Decomposition analysis reveals that community engagement provides the strongest protective effect (42.3%), followed by product responsibility (35.1%), while human rights initiatives show the weakest buffering capacity (18.9%). The results obtained demonstrate the cross-pillar complementarities of ESG and provide a foundation for the development of integrated disclosure policy.