Environmental, social, and governance evaluation for European small and medium enterprises: A multicriteria approach

Abstract

The exposure to environmental, social, and governance (ESG) risks can be effectively measured by companies to identify opportunities for long‐term sustainable growth, along with the social and environmental impact. This process is crucial for listed small and medium‐sized enterprises (SMEs) wanting additional support in their ESG transition, and for European SMEs it will be required by the implementation of the Corporate Sustainability Reporting Directive (CSRD), starting from 2026. In this contribution, we propose to apply a multicriteria decision aiding approach to assess the sustainability profiles of SMEs. The methodology, which allows the measurements of a firm's ESG efforts (ESGness), is applied to a sample of European‐listed SMEs, controlling for potential sector‐specific effects, in order to understand what is the situation on the ESG front, and to identify ESG leaders and laggards. The model can provide valuable information for the firm, and for a broad spectrum of stakeholders, including policymakers and investors. The obtained rankings show some degree of robustness across different model parameterizations. The benefits of voluntary disclosure of sustainability information are investigated under a prudential scoring framework.