ESG Reporting and Systemic Risk: Evidence from European Markets
This study examined the relationship between Environmental, Social, and Governance (ESG) reporting quality and systemic financial risk in European equity markets. A novel index was developed to evaluate reporting quality, combining three dimensions: the scope of disclosures, the extent of exposur...
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| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Editura ASE
2025-05-01
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| Series: | Amfiteatru Economic |
| Subjects: | |
| Online Access: | https://www.amfiteatrueconomic.ro/temp/Article_3448.pdf |
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| Summary: | This study examined the relationship between Environmental, Social, and Governance
(ESG) reporting quality and systemic financial risk in European equity markets. A novel
index was developed to evaluate reporting quality, combining three dimensions: the scope
of disclosures, the extent of exposure to reputational controversies, and the degree of
alignment between sustainability scores and reputational risk indicators. Using daily return
data for 600 companies listed in the STOXX Europe 600 index between 2010 and 2023,
systemic risk was assessed through conditional value-at-risk differentials, capturing each
firm’s contribution to broader financial system vulnerabilities. The analysis adopted a
comparative approach by grouping firms annually into high and low ESG reporting quality
categories and comparing their average conditional value-at-risk contributions. Statistical
tests consistently revealed that firms in the top index quartile exhibit significantly lower
systemic risk contributions than those in the bottom quartile, particularly during market
stress, such as the COVID-19 crisis and the Ukraine invasion. Quantile regression results
further suggested that this mitigating effect was strongest in the upper tail of the risk
distribution. The findings underscored the importance of credible reporting in improving
financial stability and supporting regulatory initiatives that standardise disclosures across
European capital markets, such as the Corporate Sustainability Reporting Directive and
Sustainable Finance Disclosure Regulation frameworks. |
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| ISSN: | 1582-9146 2247-9104 |