The Social Dimension of ESG Performance and Employee Compensation in the Digital Reporting Era: Panel Evidence from European Firms
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Abstract
With the widespread adoption of digital corporate reporting and sustainability disclosures, environmental, social, and governance (ESG) performance has become a fundamental component of corporate evaluation for investors and other stakeholders. This study examines the relationship between ESG Social Scores and average employee wages among large European companies. The analysis is based on an unbalanced panel dataset comprising 323 firms included in the S&P Europe 350 Index over the period 2011–2020, employing time-, industry-, and firm-fixed effects models. Firm size and capital expenditure are included as control variables, while the explanatory variables are lagged to mitigate potential endogeneity concerns. The findings indicate a negative relationship between ESG Social Scores and employee wages in the time- and industry-fixed effects models, whereas the firm-fixed effects model reveals a positive and statistically significant relationship. These results suggest that firm-specific characteristics, such as corporate culture, governance structures, and long-term social sustainability practices, play a critical role in shaping employee compensation. The findings support stakeholder theory by demonstrating that stronger social ESG commitments are associated with higher employee wages. This study provides new empirical evidence on the relationship between social ESG performance and employee welfare in European firms while highlighting the growing importance of social ESG disclosures within the digital sustainability reporting environment for corporate decision-making.
Keywords
Abstract
With the widespread adoption of digital corporate reporting and sustainability disclosures, environmental, social, and governance (ESG) performance has become a fundamental component of corporate evaluation for investors and other stakeholders. This study examines the relationship between ESG Social Scores and average employee wages among large European companies. The analysis is based on an unbalanced panel dataset comprising 323 firms included in the S&P Europe 350 Index over the period 2011–2020, employing time-, industry-, and firm-fixed effects models. Firm size and capital expenditure are included as control variables, while the explanatory variables are lagged to mitigate potential endogeneity concerns. The findings indicate a negative relationship between ESG Social Scores and employee wages in the time- and industry-fixed effects models, whereas the firm-fixed effects model reveals a positive and statistically significant relationship. These results suggest that firm-specific characteristics, such as corporate culture, governance structures, and long-term social sustainability practices, play a critical role in shaping employee compensation. The findings support stakeholder theory by demonstrating that stronger social ESG commitments are associated with higher employee wages. This study provides new empirical evidence on the relationship between social ESG performance and employee welfare in European firms while highlighting the growing importance of social ESG disclosures within the digital sustainability reporting environment for corporate decision-making.
