ESG practices and the cost of debt: Evidence from EU countries

Based on the stakeholders, voluntary disclosure and legitimacy theories, this study investigates the determining factors of ESG (Environmental, Social and Governance) disclosure at firm and country level from the perspective of emerging countries. Furthermore, it analyzes the relationship between ESG disclosure and the cost of debt of Brazilian companies, in the context of Brazil's macro and mesoregions. It is known that studies aimed at investigating ESG criteria have grown in Brazil and around the world as ESG disclosure practices are incorporated into investment decisions (Yu & Luu, 2021). This research expands the discussions on this topic by investigating how ESG disclosures are impacted by aspects at firm and country level, in the context of emerging countries, whose growth is significant in relation to more developed countries, although they are less efficient markets and with less liquidity (Kearney, 2012). Furthermore, it focuses on analyzing the relationship between ESG disclosure and the cost of debt of Brazilian companies, as Brazil represents one of the emerging countries with the largest number of signatories to the United Nations Principles for Responsible Investments (PRI) (PRI, 2023b; Yamahaki & Frynas, 2016), in which 86% of the 100 largest Brazilian companies (N100) report sustainability reports, a value higher than the general average (79%) of the 58 countries investigated (KPMG, 2022). This study is therefore composed of two Essays, with Essay 1 focusing on understanding the influence of firm-level factors, the corruption index and legal enforcement on ESG disclosures by companies in emerging countries. Using ESG disclosure data from 19 countries in the period 2016-2021, multilevel models were estimated in a sample with 19,468 firm-year observations. It is believed that internal factors of organizations, focused especially on financial performance and the characteristics of the board of directors, as well as particularities at country level, are relevant in companies' ESG disclosures. The results signaled a positive effect of the presence of women and independent members on the board of directors and a sustainability/CSR/ESG committee on ESG disclosure, as well as showing that less corrupt countries tend to have greater ESG disclosure. Contrary to expectations, it was noted that countries with greater political rights present lower ESG disclosure and there was no significance of financial performance, CEO duality and the rule of law in ESG disclosures. Essay 2, in turn, discusses the impact of ESG disclosure on the cost of debt of Brazilian, non-financial firms, considering the effect of regionality. In a sample containing 576 firm-year observations, dynamic panel models were estimated with System GMM in one or two steps and, contrary to expectations, ESG disclosure did not show a negative and significant relationship with the cost of debt. Regarding regionality, static panels with random and pooled effects were estimated and it was found that Brazil's macro-regions are related to the cost of debt of Brazilian companies, although there was no significance in the mesoregions of Triângulo Mineiro, Alto Paranaíba and Sul Goiano with the cost of debt. Therefore, this study contributes to the literature by providing empirical evidence on the relevance of gender diversity, board independence and lower corruption rates in ESG disclosure in emerging countries, as well as the Brazilian reality regarding ESG disclosures, since in this country, the benefits that environmental, social and governance practices provide for companies, investors, creditors, as well as all stakeholders involved, when it comes to sustainable economic and social performance, are not yet noticeable.

We explored how company transparency, as measured by ESG (Environmental, Social and Governance) disclosure, affected the employee turnover of 212 multinational corporations that were listed in the European capital market during the 2010-2017 period. We also examined the role of the business environment by looking at the company’s ESG reporting system and its economic sector. To analyze how ESG disclosure affected employee turnover at any point of its conditional distribution, we used a panel data quantile regression model. ESG disclosure was found to be negatively associated with employee turnover. Employee turnover, as well as the extent to which it is affected by ESG disclosure, was found to depend strongly on the conditional distribution of the turnover rate, the sector and whether ESG disclosure is mandatory or voluntary. Our findings were confirmed by a robustness check analysis. In conclusion, the relationship between company transparency and employee turnover depends strongly on the institutional context and, especially, on disclosure regulation. The more a company is scrutinized, the more it will try to be socially responsible to maintain and/or improve its reputation and thus reassure and satisfy its stakeholders. Abstract We sought to analyze the relationship between ESG (Environmental, Social and Governance) disclosure and employee turnover. We also examined how this relationship is affected by regulation of ESG reporting and by sector characteristics. A panel data quantile regression model was applied to data from 212 multinational corporations that were listed in the European capital market during the 2010-2017 period. ESG disclosure was found to be negatively associated with employee turnover. Employee turnover, as well as the extent to which it is affected by ESG disclosure, was found to depend strongly on the conditional distribution of the turnover rate, the economic sector, and whether ESG disclosure is mandatory or voluntary. A robustness check clearly confirmed our findings.

Purpose Using data gathered on Standard & Poor’s 500-listed companies between 2012 and 2023, this paper aims to examine the effect of institutional ownership on the overall environmental, social and governance (ESG) score, as well as on the E, S and G disclosure scores separately. It also compares disclosure processes within industries, with and without emissions and examines the role of board composition in mediating the relationship. Design/methodology/approach A fixed-effects panel-data regression model is used to examine how institutional ownership affects ESG disclosure. Various versions of this model are used to understand if institutional ownership affects E, S and G disclosure scores differentially. Findings Institutional investors significantly influence overall ESG disclosure in sectors that are highly visible or subject to regulatory and societal scrutiny, such as utilities, consumer staples and industrials. The impact of institutional holding is more significant for governance disclosure than for environmental and social disclosures. The authors also highlight the positive impact of female board members on overall ESG disclosure, and E, S and G disclosures in the US majority stock sectors. Practical implications This study bridges finance, sustainability and governance, offering insights into how institutional investors influence ESG disclosure across industries. It highlights the need for proactive ESG reporting across the industrial, utilities and consumer goods sectors to align with investor expectations, emphasizes the strategic role of board gender diversity and advises balancing financial goals with ESG transparency in less regulated sectors to mitigate reputational risks. Originality/value Much of the current literature on the role of institutional investors in ESG performance has been centered on their ability to enhance a firm’s ESG performance. Specifically, contemporary literature addresses their role in environmental performance, but studies are scarce on their role in governance, social and overall ESG performance. Existing research has not sufficiently explored how institutional ownership affects the quality of ESG reporting across all three pillars. Only a limited number of studies analyze the E, S and G factors together to identify which dimension benefits most from institutional shareholding. In line with this, the study uniquely examines how institutional ownership affects overall ESG reporting quality and analyzes the individual contributions of the E, S and G factors to identify which dimension is most influenced by institutional holdings.

Although legitimacy theory provides strong arguments that environmental, social and governance (ESG) disclosure and performance can help mitigate firm-specific (idiosyncratic) risks, this relationship has been repeatedly challenged by conceptual arguments, such as ‘transparency fallacy’ or ‘impression management’, and mixed empirical evidence. Therefore, we investigate this relationship in the revelatory case of initial public offerings (IPOs), which represent the first sale of common stock to the wider public. IPOs are characterised by strong information asymmetry between firm insiders and society, while at the same time suffering from uncertainty in firm legitimacy, culminating in amplified financial risks for both issuers and investors in aftermarket trading. Using data from the United States, we demonstrate that (1) voluntary ESG disclosure reduces idiosyncratic volatility and downside tail risk and (2) higher ESG ratings have lower associated firm-specific volatility and downside tail risk during the first year of trading in the aftermarket. We provide theoretical arguments for the relationships observed, suggesting that companies striving for ESG performance and communicating their efforts signal their compliance with sustainability-related norms, thus acquiring and upholding a societal license to operate. ESG performance and disclosure help companies build their reputation capital with investors after going public. We also report that ESG disclosure is a more consistent proxy for ex-ante uncertainty as an indicator of aftermarket risk, thereby replacing some of the more conventional measures, such as firm age, offered in the existing literature.

The challenge of Environmental, Social and Governance (ESG) has been identified as being inextricably linked to organisational culture, with these aspects being embedded within the company’s values and practices. The companies’ commitment in promoting sustainability, diversity and ethics in their activity is considered to be a prerequisite for effective performance in relation to all categories of stakeholders. The increased interest in the relationship between ESG and financial performance has led to a substantial volume of research. This paper’s objectives are to broaden the discussions of the relationship between ESG and financial performance, through a bibliometric analysis of 1461 articles. The following themes were identified as the primary subjects of research: corporate disclosure of ESG information and financial performance; ESG, volatility, risk and return; corporate ESG performance and dividend payment; the financial performance indicators in association with ESG performance; ESG, development, innovation, digitisation; ESG performance and earnings management; and ESG controversies and business performance. The trends in the research of the topic concerned the particularities of the relationship between the variables in times of crisis, the correlation between the variables moderated by reporting, the analysis of different ESG ratings, green financing, the particularities in the banking system, materiality and sectoral particularities, as well as ESG disclosure and corporate financial flexibility. The results of the study enhance understanding of this relationship, being useful to both stakeholders and scholars, identifying trends and tendencies in this issue, and providing directions for future studies to establish the determining factors and performance practices.

A crucial nexus between sustainable finance and investment decision-making is addressed in this study, which looks at how much Environmental, Social, and Governance (ESG) disclosures affect investor behavior in international financial markets. Academic research and real-world investment strategies now depend on an understanding of how ESG factors affect investor behavior, as they have progressed from voluntary corporate social responsibility programs to mandatory regulatory requirements in major jurisdictions. The study uses a thorough framework to examine the three pillars of ESG that are environmental impact assessment, social responsibility metrics, and governance structures and how they all affect investor decision-making. This paper examines the effects of ESG disclosures on investment flows, portfolio construction, and risk assessment strategies by examining empirical evidence from international studies, including meta-analyses of more than 1,000 research studies and performance data from major financial markets. Important conclusions show that ESG disclosures have a big impact on investor behavior, but the relationship is complex and contingent on the caliber and veracity of the information provided. Although 88% of investors worldwide indicate an interest in sustainable investing, younger generations (69% of Millennials and 72% of Gen Z) have especially strong preferences, and the efficacy of ESG disclosures varies widely. Investors react more favorably to substantive ESG performance than to superficial reporting, as evidenced by studies showing that only 26% of disclosure-focused research exhibits positive financial correlation, compared to 53% for performance-based ESG metrics. ESG-aligned portfolios demonstrate greater resilience during crises like COVID-19 and the 2008 financial crash, according to the analysis, which also shows that ESG investing has asymmetric benefits, especially during market downturns. Significant obstacles still exist, though, such as disparate rating systems used by different agencies (correlation rates are only 54% compared to 99% for credit ratings), worries about greenwashing, and regulatory fragmentation among jurisdictions. This study adds to the expanding body of knowledge on sustainable finance by offering a thorough examination of how ESG disclosures influence investor behavior in a global financial system that is becoming more interconnected by the day. The results have significant ramifications for the development of regulatory policies, investment management procedures, and corporate reporting strategies. They indicate that the best way to affect investor behavior and generate long-term value is to combine real performance improvements with authentic, material ESG disclosures.

Purpose This paper aims to study how corporate governance and country-related contextual factors affect the relationship between board gender diversity and environmental, social and governance (ESG) disclosure in its components: governance, social and environmental. Design/methodology/approach Using ordinary least-squares and two-stage least squares (2SLS) regressions, and retrieving ESG disclosure data from Bloomberg’s database, the paper analyses a sample of European nonfinancial listed firms (1,935 firm-year observations) over the period 2014–2022. The study adopts board independence and board cultural diversity as structural and demographic board attributes that characterize the corporate governance environment in which female directors operate; the enforcement of law and gender equality as country-related institutional and cultural factors. Findings Results suggest that female directors may substitute board independence in improving ESG and governance disclosure, whilst they co-occur with board cultural diversity in increasing ESG, governance and social disclosure. Findings indicate that the enforcement of law increases the positive effect of female directors on environmental disclosure and lowers the impact on governance disclosure. Conversely, a more gender-equal environment enhances female directors’ engagement in improving governance disclosure, reducing their beneficial effect on environmental information. Originality/value This study contributes to the literature suggesting that structural and other demographic board contextual aspects, as well as institutional and cultural country-related contextual factors, affect the relationship between board gender diversity and ESG disclosure differently and the effect may vary depending on ESG disclosure.

PurposeThis study aims to examine the relationship between environmental, social and governance (ESG) disclosure, firm risk and stock market returns within the Chinese energy sector. Using a variety of econometric techniques, the study seeks to uncover the impact of ESG disclosure on risk mitigation and its influence on stock market performance.Design/methodology/approachBenchmark regression models were used to explore the associations between ESG disclosure, firm risk and stock returns. To address potential endogeneity, a generalised method of moments estimator is used. Quantile regression was used for robustness analysis.FindingsThe study reveals a negative relationship between ESG disclosure and firm risk, indicating that companies with greater ESG disclosure tend to experience reduced risk exposure. In addition, a positive association is observed between ESG disclosure and stock market returns, suggesting that companies with more comprehensive ESG disclosure practices tend to perform better in the stock market.Research limitations/implicationsThis study implies that investors appreciate sustainable investment and incorporate ESG practices and disclosure in decision-making. Policymakers can promote transparent ESG reporting through regulatory frameworks, fostering sustainable practices in the energy sector.Originality/valueDespite the mounting concerns over carbon dioxide emissions and the energy industry’s environmental footprint, this study pioneers a comprehensive analysis of ESG disclosure within this critical sector. Delving into the relationship of ESG practices, firm risk and market returns, this research uniquely examines both risk mitigation and return enhancement, shedding new light on sustainable strategies in the energy domain.

Purpose Over the past two decades, various exogenous shocks pushed companies to enhance their organizational resilience capabilities. This study aims to identify mechanisms used by Brazilian companies to reduce the impact of exogenous shocks and antecedents contributing to the development of organizational resilience. Design/methodology/approach The study particularly examines the influence of ESG performance and disclosures on organizational resilience, which, as a latent construct, was measured using long-term growth and financial volatility and stressed by an ordinary least squares regression with random effects and robust standard errors. Findings Our results demonstrate that ESG performance reduces the financial volatility of Brazilian non-financial listed companies and that ESG disclosures have a significant impact on long-term growth and the reduction of financial volatility during periods when companies are exposed to exogenous shocks, thereby contributing to their resilience. Research limitations/implications Our study was limited to the long term. Future studies investigate the impact of ESG performance and disclosure on the trade-off between short and long-term growth in emerging market countries. Practical implications The practical implications of the study are to observe how managers, investors and regulators can use ESG practices as a mechanism for building organizational resilience and managing crises. Social implications The study demonstrates the impact on building resilience in the communities and regions in which they operate by using ESG practices to build their resilience. Originality/value This study, therefore, corroborates the influence of ESG performance and disclosure in the development of proactive and reactive organizational resilience capabilities.

This research explores the disclosure of Environmental, Social and Governance (ESG) factors and their relationship with company performance. This research argues that ESG disclosure can influence a company's reputation, financial performance, analyst forecast accuracy, market valuation, and corporate decisions. By using ontological, epistemological and axiological approaches in the field of accounting, this research aims to understand the relationship between ESG disclosure and company performance. The literature review method was used to identify and evaluate relevant previous research. The findings indicate that there is a consensus in the literature regarding the positive relationship between ESG disclosure and corporate financial performance. This research also combines the ESG Rating Model and Environmental, Social and Governance indicators developed by MSCI to assess companies' ESG performance. A philosophical understanding of ESG in terms of ontology, epistemology, and axiology—which relate to the nature of reality, theories of knowledge, and values—reveals that ESG is closely related to moral, economic, and social values, as well as factual and normative knowledge. This research concludes that companies that integrate good ESG practices not only fulfill their social and environmental responsibilities but also achieve better financial performance, emphasizing the importance of ESG as a strategic consideration in business and investment decision-making and the long-term survival of companies.

This study examines the effect of ESG (Environmental, Social, and Governance) disclosure on the performance of real estate companies in the ASEAN-6 region, with CEO tenure as a moderating variable. Using panel data from 2016 to 2023, covering 424 observations of real estate firms listed on ASEAN-6 stock exchanges, this study employs the Random Effect Model (REM) to analyze the relationships between variables. The findings reveal that ESG disclosure has a negative and significant impact on firm performance, as measured by Tobin's Q. However, the interaction between ESG disclosure and CEO tenure exhibits a positive and significant effect. These results indicate that longer-tenured CEOs can moderate the relation-ship between ESG disclosure and firm performance. The implications of this research provide valuable insights for companies to enhance ESG transparency and consider leadership stability in optimizing long-term performance.

Purpose The term environmental, social and governance (ESG) has gained momentum in recent years. Thus, understanding its underlying driving mechanisms has become increasingly intriguing. In this study, we examine the effects of economic policy uncertainty (EPU), climate policy uncertainty (CPU) and geopolitical risk (GPR) on firms’ ESG disclosure. Design/methodology/approach To achieve the paper’s goal, we use the mixed data sampling (MIDAS) regression model on a sample of 500 firms from the US stock market. Findings The results indicate that EPU and GPR have significant adverse effects on ESG performance, whereas the CPU index exhibits a positive impact. However, the significant associations of CPU and GPR with ESG score observed in the whole sample do not hold consistently across industries. This suggests that, while overarching trends might exist, individual sector characteristics and varying external influences can shape the relationship between uncertainty factors and ESG performance. This highlights the importance of context when analyzing ESG practices across different industries. Furthermore, we identified a range of influential financial parameters that drive ESG practices. Practical implications The findings of our study have significant implications for many parties including policymakers, managers, governments, investors and shareholders. Additionally, sector-specific policies may be needed to encourage sustainable practices, particularly in industries sensitive to environmental and geopolitical risks. Originality/value The paper’s originality lies in its examination of the combined impact of EPU, CPU, and GPR on ESG disclosure – a relationship rarely explored in existing literature. Using the MIDAS model, it provides a more refined analysis by integrating both high- and low-frequency data. The study also offers industry-specific insights, revealing how these external uncertainties affect ESG disclosure differently across sectors. By incorporating financial drivers and offering policy implications, this research presents a novel and comprehensive approach to understanding ESG disclosure under increasing global uncertainties.

This study investigates the impact of ESG (Environmental, Social, and Governance) assurance and disclosure quality on the financial performance of companies listed in the IDX ESG Leaders Index in Indonesia. Motivated by regulatory advances such as POJK 51/2017 and the adoption of SPK Indonesia aligned with IFRS S1 and S2, the research assesses whether comprehensive and credible ESG disclosures enhance Return on Equity (ROE) and reduce cost of capital. Using panel data for Q1 2024 and a balanced sample of 30 firms, the analysis examines ESG disclosure indicators Scope 1, 2, and 3 emissions, third party assurance, governance structures, and reference to global standards (GRI, ISSB) and their associations with ROE, excess returns, and cost of debt. Panel regression results show that firms with ESG assurance exhibit significantly higher ROE. Scope 3 emissions disclosure and alignment with ISSB also correlate with reduced financing costs. Robustness tests confirm the stability of results. The findings demonstrate that ESG assurance acts as a signal of credibility, mitigates greenwashing risk, and enhances market perception. Companies with strong ESG governance and transparent, standardized disclosures are more likely to attract investment and secure favorable financing terms. As Indonesia moves toward mandatory ESG assurance through SPK Indonesia, this research supports regulatory emphasis on verifiability and standard alignment. The study contributes localized empirical evidence from a leading Southeast Asian market and informs policy design, investor strategy, and corporate governance practices under evolving ESG disclosure standards.

PurposeEnvironmental, social and governance (ESG) factors have become increasingly important in investment decisions, leading to a surge in ESG investing and the rise of sustainable investment assets. Nevertheless, challenges in ESG disclosure, such as quantifying unstructured data, lack of guidelines and comparability, rampantly exist. ESG rating agencies play a crucial role in assessing corporate ESG performance, but concerns over their credibility and reliability persist. To address these issues, researchers are increasingly utilizing machine learning (ML) tools to enhance ESG reporting and evaluation. By leveraging ML, accounting practitioners and researchers gain deeper insights into the relationship between ESG practices and financial performance, offering a more data-driven understanding of ESG impacts on business communities.Design/methodology/approachThe authors review the current research on ESG disclosure and ESG performance disagreement, followed by the review of current ESG research with ML tools in three areas: connecting ML with ESG disclosures, integrating ML with ESG rating disagreement and employing ML with ESG in other settings. By comparing different research's ML applications in ESG research, the authors conclude the positive and negative sides of those research studies.FindingsThe practice of ESG reporting and assurance is on the rise, but still in its technical infancy. ML methods offer advantages over traditional approaches in accounting, efficiently handling large, unstructured data and capturing complex patterns, contributing to their superiority. ML methods excel in prediction accuracy, making them ideal for tasks like fraud detection and financial forecasting. Their adaptability and feature interaction capabilities make them well-suited for addressing diverse and evolving accounting problems, surpassing traditional methods in accuracy and insight.Originality/valueThe authors broadly review the accounting research with the ML method in ESG-related issues. By emphasizing the advantages of ML compared to traditional methods, the authors offer suggestions for future research in ML applications in ESG-related fields.

Environmental, Social and Governance (ESG) disclosure, competitive advantage and performance of firms in Malaysia