Abstract:

As ESG disclosure becomes institutionalised under mandatory reporting regimes, firms face increasing pressures to conform, potentially limiting opportunities for strategic differentiation. Drawing on optimal distinctiveness theory, this study examines whether material ESG distinctiveness functions as a differentiation mechanism and how alternative sources of legitimacy shape its performance consequences. Using Bloomberg ESG materiality scores for European listed firms between 2016 and 2022 during the implementation of Directive 2014/95/EU, we analyse the relationship between material ESG distinctiveness and firm value.

We find a U-shaped relationship, whereby both high conformity and strong differentiation are associated with higher firm value. Moreover, analyst earnings forecasts strengthen this relationship, acting as a legitimacy buffer that expands the range of acceptable distinctiveness. These findings extend optimal distinctiveness theory by demonstrating how material ESG positioning creates value within institutionalised reporting environments.

Please choose your submission type: Full Paper

Primary Track: Sustainable and Responsible Business

Keywords: international business;CSR

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Dr. Carlos Cid-Aranda