How to explain stock returns of utility companies from an environmental, social and corporate governance perspective

Abstract

Sustainability is a major challenge in today's business world, making environmental,social and governance criteria an indispensable tool for business management andinvestment decisions. Using 2020 data of 47 companies from the STOXX EuropeTotal Market Utilities Index and qualitative comparative analysis, this study aims toanalyse how the combination of CO2equivalent emissions, sustainability compensa-tion incentives, environmental investments, environment management training, andpolicy fair competition leads to utility companies' stock market returns. Two subsam-ple models (electricity and non‐electricity utilities) have been considered in the study.The results point to the absence of CO2equivalent emissions, the absence of incen-tives, and the presence of environmental investment as key variables to lead to stockmarket returns. The findings provide relevant information for managers and practi-tioners of utilities industry to achieve improvements in the environmental, social andgovernance management practices, maintaining profitability in financial markets andfacilitating decision‐making for investors