An Empirical Assessment of Stakeholder Preference Rankings in ESG Practices of European Listed Firms

Abstract

The study examines the ranking of stakeholder preferences based on the ESG ratings of 704 publicly listed European companies over the period 2009--2020. The novelty of the research lies in linking corporate ESG performance to stakeholder theory through the development of a stakeholder taxonomy, and in assessing corporate stakeholder preferences based on the principle of double materiality. The objective of the study is to explore which sustainability topics companies consider material and how these preferences relate to stakeholder value creation. Using the non-negative least squares (NNLS) method, we estimate implicit ESG category weights and match ESG categories with stakeholder groups based on the proposed stakeholder taxonomy. We then rank corporate stakeholder preferences according to a double materiality-based weighting scheme. Our results indicate that, in terms of stakeholder preference rankings, companies generally prioritize internal stakeholders over external ones. Among external stakeholders, suppliers, communities, and customers occupy prominent positions. Firms with higher ESG performance also place greater emphasis on sustainability aspects related to environmental responsibility. Given the limited empirical evidence on the ranking of stakeholder preferences among publicly listed European firms, our study may provide guidance for the development of sustainability strategies and for conducting materiality assessments that underpin sustainability reporting.