EU Taxonomy eligibility, sustainability performance and systematic market risk in the airline industry

Air transport constitutes a complex sector to address from a sustainability perspective because of its high technological requirements and the significant volume of emissions associated with its activity. Since the introduction of the EU Taxonomy, aviation has been recognised as a transition activity, reflecting its potential role in the progression towards more sustainable business models. This study examines whether EU Taxonomy eligibility and sustainability performance are associated with systematic market risk in the airline industry. Using Partial Least Squares Structural Equation Modeling (PLS-SEM) and 156 pooled firm-year observations from 39 listed airlines over 2021–2024, this study examines the direct and indirect associations among EU Taxonomy eligibility, measured through eligible CapEx, sustainability performance, and systematic market risk, proxied by market beta. In addition, the moderating role of ESG Controversies Score in the relationship between sustainability performance and systematic market risk is analysed, while controlling for firm size. The results show that greater eligible CapEx and stronger sustainability performance are associated with lower systematic market risk. Sustainability performance partially mediates the association between EU Taxonomy eligibility and market beta. In addition, the ESG Controversies Score is negatively associated with systematic market risk and significantly moderates the sustainability performance-risk relationship. The negative interaction indicates that sustainability performance is more strongly associated with lower market beta when firms have a more favourable controversy profile and lower exposure to negative ESG events.