Impact of environmental double materiality on firm valuation: Evidence from the EU

Abstract

This study examines how environmental reporting influences firm valuation across high-impact EU sectors. We focus on disclosures related to environmental supply chain management, energy efficiency, water efficiency, renewable energy use, and green capital expenditures as double materiality factors, and assess their impact on firm valuations. Our analysis covers an unbalanced panel of 224–328 publicly listed EU firms from environmentally sensitive sectors over the period 2019–2023. The findings reveal a significant, positive relationship between these disclosures and firm value, which remains consistent across both fundamental and multiplier-based valuation metrics. The results indicate that transparency in climate-related practices can enhance firm value, aligning corporate actions with market expectations for sustainable growth. Our results contribute to the discourse on the Corporate Sustainability Reporting Directive, demonstrating that double materiality disclosures provide investors with crucial information. This research advances the understanding of climate corporate finance, emphasizing the importance of standardized environmental disclosures in supporting the firm value and reducing systemic uncertainty in the EU regulatory space.