Value relevance and corporate environmental, social, and governance (ESG) sustainability performance. Evidence from FTSE100, FTSE250 and small-cap companies.

This study aims to investigate the value relevance of environmental, social, and governance(ESG) sustainability performance for FTSE100, FTSE250, and Small-cap companies. Therehas been an increasing demand from stakeholder groups for incremental ESG sustainabilitypractices within business activities. In response to stakeholder demand, firms adopted costlysustainability approach integrated within the operation. Therefore, this study aims toinvestigate the financial implications of sustainability performance on market value of share.This study employed Ohlson’s (1995) model to test the association between the market valueof the share and sustainability performance. Using a sample of 1210 companies between 2017and 2020, this study estimates the role of environmental, social, and governance sustainabilityperformance on firm value. The results indicate that sustainability performance providesadditional decision useful information to the investors. Overall, this study found positiveassociation for the ESG, social and governance performance and negative association for theenvironmental performance. The negative impact of lower sustainability performance is higherfor the bigger firm compared to the smaller firm. Investors penalise large firms more severelyfor operating in environmentally sensitive industries than smaller firms. Surprisingly, youngerfirms have better sustainability performance and higher market value.This study investigated the role of corporate sustainability performance from several theoreticalreference points. The most notable achievement has been identifying the varying levels of valuerelevance for environmental, social, and governance performance separately and combinedlyand found different levels of association for FTSE4Good and FTSE100, FTSE250 and Smallcapcompanies. The findings have practical implications for corporate managers, investors,shareholders, lenders, banks, regulators, and standard setters. The incremental value relevanceof sustainability performance encourages firms to adopt more sustainability practices, whileinvestors invest in sustainability projects in the long term.