Multidimensional spatiotemporal clustering -- An application to environmental sustainability scores in Europe

TL;DR

This paper applies multidimensional spatiotemporal clustering to analyze European firms' sustainability scores, revealing geographic and temporal patterns that inform policy and corporate risk assessment.

Contribution

It introduces a modified hierarchical clustering method combining spatial and temporal sustainability data to identify homogeneous groups of firms across Europe.

Findings

Clusters show significant geographic overlap in sustainability performance.

Temporal dynamics are crucial in understanding sustainability score variations.

The approach captures diversity in ESG ratings across regions and industries.

Abstract

The assessment of corporate sustainability performance is extremely relevant in facilitating the transition to a green and low-carbon intensity economy. However, companies located in different areas may be subject to different sustainability and environmental risks and policies. Henceforth, the main objective of this paper is to investigate the spatial and temporal pattern of the sustainability evaluations of European firms. We leverage on a large dataset containing information about companies' sustainability performances, measured by MSCI ESG ratings, and geographical coordinates of firms in Western Europe between 2013 and 2023. By means of a modified version of the Chavent et al. (2018) hierarchical algorithm, we conduct a spatial clustering analysis, combining sustainability and spatial information, and a spatiotemporal clustering analysis, which combines the time dynamics of multiple sustainability features and spatial dissimilarities, to detect groups of firms with homogeneous sustainability performance. We are able to build cross-national and cross-industry clusters with remarkable differences in terms of sustainability scores. Among other results, in the spatio-temporal analysis, we observe a high degree of geographical overlap among clusters, indicating that the temporal dynamics in sustainability assessment are relevant within a multidimensional approach. Our findings help to capture the diversity of ESG ratings across Western Europe and may assist practitioners and policymakers in evaluating companies facing different sustainability-linked risks in different areas.