The role of ESG ratings in enhancing financial stability : evidence from the European technology sector

Abstract

This thesis investigates the relationship between environmental, social, and governance (ESG) ratings and financial stability in the European Union’s technology sector. Using the Altman Z’’-Score as a measure of firm-level solvency, the study analyzes whether higher ESG performance is associated with reduced bankruptcy risk. The data comprises 162 firm-year observations from publicly listed technology companies across 15 EU member states, using financial and ESG data sourced from Refinitiv Workspace for the period 2018–2024.

Ordinary Least Squares (OLS) regression analysis is employed to test two hypotheses: (1) that firms with higher ESG ratings exhibit greater financial stability, and (2) that the governance pillar has a stronger influence on financial stability than the environmental and social components. Control variables include return on assets, leverage, firm size, R&D intensity, and GDP per capita.

The results indicate that ESG ratings—both composite and pillar-level—do not have a statistically significant impact on financial stability in the short term. In contrast, profitability (ROA) and leverage are found to be strong predictors of solvency. These findings suggest that while ESG engagement may contribute to long-term resilience, its immediate effect on financial stability is limited. The study highlights the importance of time horizon and industry-specific dynamics in evaluating the role of ESG in financial risk mitigation.