The Influence of ESG Performance on Default Risk: an empirical analysis in the European market

Corporate Social Responsibility (CSR) has gained significant attention in recent years due to increasing concerns about the environmental and social impact of businesses. This thesis presents a comprehensive analysis of the influence of Environmental, Social, and Governance (ESG) factors on corporate financial performance, integrating both theoretical insights and empirical evidence. As CSR becomes an increasingly important criterion for asset selection and investment decisions, this study applies Modern Portfolio Theory to evaluate how ESG considerations affect portfolio performance. A review of existing literature highlights the role of ESG factors in enhancing profitability, mitigating risk, and easing capital constraints. Building on this foundation, a panel data regression model is employed to examine the relationship between ESG performance and default risk in large European listed companies from 2017 to 2022. Additionally, the study explores the mediating role of ESG controversies in shaping this relationship. While the direct link between ESG scores and default risk remains inconclusive, this study provides valuable insights into the intersection of sustainability and corporate solvency, highlighting the broader benefits of ESG integration for financial performance and corporate reputation.