The Relationship between ESG performance and financial performance: The moderating role of legal institutions in European firms

In this thesis, we look at how legal institutions shape the link between Environmental, Social, and Governance (ESG) performance and financial outcomes across Europe. We start from a simple fact in the literature: most studies find that better ESG performance goes together with better financial performance, but a noticeable group of studies finds weak, no, or even negative effects. We argue that these mixed results are not just noise or a side effect of different methods; they reflect the legal and governance setting in which firms operate and in which investors read and price ESG information. We separate two pieces of the story. First, there is the content of ESG itself: what firms commit to do for the environment, for workers and communities, and how they organize their internal governance. Second, there is the institutional context that makes these commitments believable, enforced in practice, and relevant for investors. Here we focus on three features: where the legal system comes from (legal origin), how strongly it protects investors, and how well the rules are enforced. We look at Europe because it combines ambitious sustainability goals with very different legal systems across countries. In this setting, we examine how legal institutions can strengthen, filter, or weaken the financial impact of ESG practices. In some countries, rights are real and rules are actually enforced. When that happens, investors are more likely to trust ESG promises, and you can see that in prices and basic financial numbers. In other places, the rules look good on paper but do not change much in real life, so ESG risks becoming more of a label than a lever. In this thesis, we treat the ESG–performance link as something that shifts with the legal setting, not as a fixed rule that works the same way everywhere.