In a world where there is an increasing scrutiny on companies to behave more responsibly and have a more comprehensive business model, understanding the impact of capital structure choices on sustainability performance can improve decision making on a corporate level but also from an outside perspective, as an investor. This thesis studies the effects of capital structure choices and more particularly the effects of a strong reliance on debt, a long-term maturity structure and a strong payout policy on the sustainability performance of 108 medium and large-cap European companies between 2015 and 2019. After looking at existing literature related to the area of interest, I describe the different variables used in this study as well as how they are computed and explain their relevance. Thereafter, several regressions are conducted to test the effects of the independent variables on the ESG-performance of the sample firms. Subsequently, a comparison based on the sample firms’ GICS industry classification is also conducted to assess the strength of the effect based on the industry is which the firm is classified in. The findings of these different OLS and Tobit regressions prove that there is a strong interrelation between capital structure choices and ESG-performance. The conclusions drawn from this research seem to point towards and provide a strong evidence related the cash flow theory of Jensen (1987), Modiglianni and Miller’s (1958) capital structure theory and for certain industries, the agency conflicts theory by Jensen and Meckling (1976).

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