Abstract
This paper investigates the joint impact of environmental practices and digitalization on the financial performance of European industrial firms, with a focus on differences between Western and Eastern Europe. Using a large multi-country panel dataset, the study applies fixed effects regression models with robust standard errors to control for unobserved firm heterogeneity and common shocks. Environmental practices are measured using environmental ESG scores, digitalization is proxied by digital investment intensity, and financial performance is captured by return on equity (ROE). The results indicate that stronger environmental practices and higher digital investment are positively associated with firm performance in the full sample. Moreover, digitalization strengthens the performance effects of environmental practices, suggesting a complementary relationship. However, these effects are primarily driven by firms in Western Europe, while relationships are weaker and statistically insignificant in Eastern Europe. The findings highlight the importance of digital readiness and institutional context in translating sustainability initiatives into financial returns.
Keywords: digitalization, environmental practices, industrial firms, financial performance