Do investors care about ESG scores in the fashion industry? The influence of ESG rating on market value

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Abstract
Purpose: This study aims to examine the relationship between environmental, social and governance (ESG) scores and market valuation, measured by Tobin’s q, in the context of fashion companies. Design/methodology/approach: Using a random effects model with robust standard errors, the analysis covers the period 2018–2022. It examines the impact of total ESG scores, as well as individual environmental (E) and governance (G) scores, on Tobin’s q. This study also investigates the lagged effects of these scores and evaluates the instantaneous impact and the combined ESG score, which adjusts the total ESG score for negative press releases. Findings: The analysis shows a statistically significant positive effect of the total ESG score and the individual E and G scores on Tobin’s q, with a lagged effect observed. However, no statistically significant impact on market valuation is found when considering instantaneous effects or using the combined ESG score. Originality/value: This study represents a new contribution as, to the best of the authors’ knowledge, it is the first study to examine the impact of ESG scores in a sector-specific context, specifically within the fashion industry, highlighting the importance of sustainability efforts for market performance in this sector.

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