FINANCIAL SUSTAINABILITY PERFORMANCE OF AIRLINES

PurposeAssessing the performance and stability of financial institutions is crucial for investors, regulators and stakeholders. The primary purpose of this study was to examine the economic resilience and sustainability performance of banks operating in Türkiye through their capital adequacy, asset quality, management quality, earnings, liquidity, and sensitivity to market risk (CAMELS) and environmental, social and governance (ESG) scores. The research examined whether there was a significant relationship between the CAMELS and ESG scores of the banks in the sample and how they affected each other.Design/methodology/approachThis study analyzed the relationship between the CAMELS and ESG scores of five public and private banks operating in Türkiye. The study used statistical techniques such as correlation, regression and descriptive statistics to analyze the relationship between the CAMELS and the ESG score clusters. The data in the research cover the period 2008–2022 and were obtained from open sources disclosed to the public by the banks.FindingsThe study found a statistically significant relationship between the financial institutions’ CAMELS and ESG scores. Banks with higher CAMELS scores had a better ESG performance; however, this relationship was not linear. Regression analysis allowed for the identification of factors that had a significant impact on ESG scores within the CAMELS framework. No effect was detected on earnings (E), one of the CAMELS elements in the “economic, environmental, and governance elements” section of the banks' ESG scores. Management quality (M) positively affected only governance (G). Additionally, it was determined that the banks’ environmental performance (ENV) positively affected their CAMELS score.Practical implicationsThe positive relationship between the CAMELS and ESG dimensions shows that financial sustainability is essential. The findings are expected to enrich the understanding of financial institutions’ resilience in the context of Türkiye, which constitutes the research sample. In addition, the inferences that can be made from this Turkish sample are essential for informing investment decisions, regulatory frameworks and broader stakeholder engagement in similar markets.Social implicationsAlthough a significant and positive relationship was established between ESG and CAMELS scores, a substantial and positive relationship only sometimes emerged when the sub-elements of the variables in question were examined. Investing in environmental initiatives helps companies build sustainable business models for the long term, paving the way for future profits and improved capital adequacy and liquidity. However, new regulations and practices related to environmental activities may introduce additional costs, necessitating changes to existing business processes.Originality/valueThis study provides important information regarding the interaction in financial institutions between financial stability assessed by CAMELS scores and sustainability performance measured by ESG scores. The findings show that institutions with robust economic fundamentals demonstrate better ESG performance. This indicates that there is a positive relationship between financial stability and responsible business practices. This information will help investors, regulators and stakeholders to make informed decisions about financial institutions, decisions that focus on sustainability. The results also suggest that it is necessary to use dynamic models and analytical tools to address the link between CAMELS and ESG.

Purpose: To analyze the impact of the Covid-19 Pandemic on the relationship between ESG (Environmental, Social and Governance) scores and the financial performance of Brazilian publicly traded companies. Methodology: The sample of this study consists of 100 Brazilian non-financial companies listed on B3 (Brasil, Bolsa, Balcão) with information about ESG. The data collection spanned a time series from 2018 to 2021. ESG scores were collected from the Refinitiv Eikon® database, using ROA (Return on Assets) as a proxy for financial performance. Two research hypotheses were tested: the first regarding the association between ESG and financial performance, and the second examining the effect of Covid-19 on this relationship. The hypotheses were tested using the Ordinary Least Squares (OLS) regression model, with controls for time and sector. Results: The results show that the financial performance of firms with ESG Score, Combined, and Environmental classifications demonstrated a positive and significant relationship, meaning that firms with higher ESG scores offered better financial performance on average. However, the non-significant result for the relationship between financial performance and ESG during the Covid-19 period indicates that it cannot be said whether firms with higher ESG scores were more or less impacted by this pandemic period. Contributions of the Study: This study utilized three types of ESG scores (Score, Combined, and Controversies), as well as the ESG pillars: Social, Governance, and Environmental. This allowed for a more comprehensive examination of the ESG indicators available to investors in the selection of companies for resource allocation. This joint analysis also contributes to the advancement of recent literature by analyzing all available ESG indicators for publicly traded companies in Brazil.

The study aims to assess the impact of the ESG (Environmental, Social, and Governance) score of the company on its market value. The research focuses on stock companies of financial markets of European Union (EU) Member States for the years 2011–2021. The ESG discourse on the EU regulated markets was examined across nine economic sectors, in line with LSEG terminology. To test the relationship between ESG performance and firm value, the modified Ohlson Valuation Model (OVM) was utilized. Tobin’s Q was considered as the proxy of firm value, RoA as the proxy of the company’s financial performance, and ESG scoring as the proxy of ESG information that is relevant in assessing the market value. Seven control variables for firm characteristics were also included. To account for potential institutional bias, grounded in legitimacy and institutional theories, we employed two dummy variables – COUNTRY and SECTOR. The findings confirmed our research hypothesis that there is a statistically significant relationship between ESG score and firm value. In line with stakeholder theory, the results support the notion that companies with high ESG scores achieve higher firm value than those with low ESG scores, thus shedding more light on the growing importance of ESG factors for the performance of European companies. The study offers new insights into relationship between ESG performance and firm market value, examined from both from country and sectoral perspectives.

Purpose This study examines the impact of board gender diversity (BGD) on financial performance (FP) and environmental, social and governance (ESG) disclosures, as well as the impact of ESG disclosures on FP. Furthermore, this study investigates the moderating role of ESG disclosures in the relationship between BGD and FP. Design/methodology/approach The sample included data on 60 nonfinancial companies listed on the Abu Dhabi Securities Exchange and the Dubai Financial Market from 2012 to 2021. Data were collected from a Bloomberg Terminal. Dynamic panel data regression was used to study the impact of BGD and ESG on FP. Findings During the voluntary ESG reporting period, the impacts of ENV and GOV on FP were significant, whereas that of ESG was not. BGD improves the FP of listed nonfinancial companies when mandatory ESG disclosure is required. However, this relationship was negatively moderated by ESG during adherence to these requirements. Research limitations/implications It is recommended that nonfinancial companies listed in the United Arab Emirates (UAE) practice a more favorable mechanism to enhance BGD when their ESG scores become weaker. Improving BGD practices for nonfinance companies with strong or increasing ESG scores will not be effective as it may reduce the strength of the existing association between BGD and FP. Practical implications It is recommended that nonfinancial companies listed in the UAE practice a more favorable mechanism to enhance BGD when their ESG scores become weaker. Consequently, such companies can improve FP in terms of an increased market value of shares (Tobin’s Q) when their ESG scores decrease. However, improving BGD practices for nonfinance companies with strong or increasing ESG scores will not be effective because it may reduce the strength of the existing association between BGD and FP. Originality/value To the best of the authors’ knowledge, this is the first study to find a negative moderating role of ESG in the relationship between BGD and FP, particularly during mandatory ESG reporting requirements.

Purpose – This paper aims to investigate if there is a significant relationship between corporate ESG (environmental, social, and governance) scores and firm profitability (ROA) and whether this relationship is positive, negative, or neutral. Methodology – The study examines all listed companies from the European tourism industry for which ESG scores are available. The final sample consists of 48 firms from 14 European countries and 258 firm-year observations, obtained through the Refinitiv database for the period from 2010 to 2019. Panel regression analysis was used to examine the relationship between ESG scores (independent variable) and ROA (dependent variable), including financial leverage and firm size as control variables as well. Findings – The results show that ESG scores are negatively related to firm performance as measured by ROA and such a relationship is statistically significant at 5%. Higher levels of ESG scores are associated with lower levels of ROA and vice-versa. Conclusion –The findings suggest that instead of just trying to give the appearance of being ESG-oriented, it is important for companies to actually implement proper ESG practices and standards. Also, in order to promote the adoption of environmental, social, and governance (ESG) practices by companies, it is crucial to educate the public about the long-term benefits of these practices and encourage support for companies that follow these standards. Keywords: ESG score, tourism, profitability, Europe. JEL Codes: G30, Q56, Z33.

This study examines the impact of stock returns and risks on ESG (Environmental, Social, and Governance) scores in emerging Asian markets during the COVID-19 pandemic. Utilizing panel data from Refinitiv Eikon for March 2019 to March 2022, this research investigates how returns, risks, and control variables such as Excess Market Return, SMB, HML, and Liquidity influence ESG scores. The findings reveal that returns and risks exhibit differential impacts on ESG scores, with social factors emerging as the most influential ESG component. These results highlight the nuanced role of financial performance in driving ESG metrics during crises, particularly in less-developed markets.

This research proposes to probe the mutual association between environmental, social and governance (ESG) and social scores on the operational (inventory turnover ratio and sales) and financial (gross profit margin) performance of Indian firms. Moreover, the competition is used as a moderator to study the association between ESG and social scores on the Indian firm performance. This study measures linear and non-linear associations between the variables. Employing quantile regression for the 25th, 50th and 75th quantiles, it examines the association between a firm’s performance and its social and ESG score. For the study, data from 316 listed non-financial enterprises in India during 12 years (2011–2022) are combined. The study found that ESG and social score significantly affect inventory turnover, gross profit margin ratio and sales differently on different levels. Competition also significantly moderates the association of ESG, social score and a firm’s financial and operational performance in different quantiles. These research findings help managers consider competitive advantage as a factor in enhancing firm performance. According to the study’s findings, it guides managers, practitioners and authorities who are curious about firm performance, competitive advantage and ESG scores find interesting insights into the information. Managers can find the right amount of competitive advantage that enhances firm performance. The results also provide information on potential future growth for corporations to the board of directors and other authorities. We do not observe any paper reporting the non-linear and linear association where the connection of ESG and performance is assessed under the moderation of competition in Indian firms. The research’s conclusions can guide Indian businesses, outlining a workable structure for highlighting the value of ESG disclosure in performance evaluations. Therefore, the current article contributes substantially to the existing body of knowledge on sustainability and finance.

PurposeIn the swiftly evolving business landscape, environmental, social and governance (ESG) considerations have gained exceptional prominence, as stakeholders increasingly emphasize accountability and sustainability. This study aims to meticulously probe the intricate interplay between ESG factors, financial performance and the distinct corporate governance landscape that characterizes the Nordic region's crucible of proactive societal and environmental commitment.Design/methodology/approachThe authors begin with a data set of 899 Nordic firms across Sweden, Norway, Denmark, Finland and Iceland. Using the Thomson Reuters database, they refine this data set by excluding non-regional headquarters and entities without ESG scores or year-long financial data. This resulted in a focused data set of 1,360 firm-years spanning a decade, forming the foundation for investigating the link between ESG factors and financial performance in Nordic firms.FindingsDrawing upon empirical data, the authors systematically dissect the correlation between specified financial ratios and ESG scores on the bedrock of sustainability evaluation. The findings underscore a partially significant, yet robust relationship between ESG endeavors and financial performance metrics. Furthermore, the intricate interplay of corporate governance dimensions’ reveals intriguing correlations with financial indicators among the surveyed Nordic enterprises. However, the findings also reveal an intricate weave that underscores the ESG and financial performance nexus.Research limitations/implicationsThis study addresses stakeholders’ theory and unique positions and contributes to the current discussion on sustainability reporting literature by providing empirical evidence of ESG influences on firm profitability through board characteristics in the specific context of the Nordic region. The sample for this study encompasses firms listed in Nordic countries; thus, the results may not be generalizable to unlisted firms and other countries or regions.Practical implicationsThis study suggests that Nordic firms are advanced in reporting ESG in response to diverse stakeholder demands as part of their regular activities. This study provides valuable insights for diverse stakeholders including researchers and regulatory bodies.Social implicationsThis study provides an understanding of stakeholders about the association of ESG and sustainability practices with firm profitability, which might lead to making the world a better place.Originality/valueWhile illuminating the multifaceted ESG-financial performance nexus, this study reveals its intricate nature. This complexity accentuates the compelling need for further exploration to decode the exact outcomes and myriad factors contributing to the array of correlations observed. Through this comprehensive inquiry, this research advances the understanding and underscores the pivotal role of a focused investigation. This study seeks to harmonize ESG practices and financial performance seamlessly within the Nordic business realm.

ESG has become a hot topic in investment circles. In this article, we train the ESG lens on sovereign debt. We carry out an empirical analysis to assess whether environmental, social, and governance factors drive pricing and investment returns of sovereign external debt. Our major finding is that ESG considerations matter for sovereign bond investing, even after relevant macroeconomic and credit variables are taken into consideration. This is particularly the case for emerging markets, where we document evidence of an additional ESG risk premium relative to developed markets. Furthermore, by testing an ESG-focused investment strategy, we examine the hypothesis that ESG could potentially detract from investment returns. We find no evidence over our historical time frame that an ESG-focused investment strategy results in any investment disadvantage. In addition, our results suggest support for potential advantages of an active approach to ESG portfolio management. TOPICS:ESG investing, fixed income and structured finance, portfolio construction, performance measurement Key Findings ▪ Our research shows that ESG (environmental, social, and governance) scores are significant drivers of sovereign credit spreads. Debt issued by countries with high social and governance scores in particular, tend to have tighter credit spreads. ▪ The relationship between ESG scores and credit spreads is particularly strong for emerging market countries, where we find evidence of an additional ESG risk premium relative to developed markets. ▪ We find no evidence that investors are penalized for ESG-aware investment strategies in the form of lower returns, but our analysis does support the case for in-depth ESG analysis in the context of an active approach to portfolio management.

Amongst the many other positive economic consequences of Environmental Social and Governance (ESG) like better financial performance, increased firm value, diminished earnings management etc., lower synchronicity of stock prices draws the special attention of researchers in the recent past. It is mainly due to increasing awareness of the retail and institutional investors on the ESG performance of the companies. The extant literature as evidenced these positive economic consequences of ESG (Gelb and Strawser, 2001, Barnea, Heinkel and Kraus, 2017, Jin, Piggott and Mitchell, 2011, Singh, Sethuraman and Lam, 2017, Eom and Nam, 2017), ESG performance of the firms makes them more resilient to markets risks leading to decrease in beta and increase in alpha values of the stocks. The studies like (Morck, Yeung and Yu, 2000) evidenced that emerging markets experience more stock price synchronicity due to higher correlation among the fundamentals of the companies. Against this backdrop, the present study makes an attempt to test the impact of ESG performance on stock price synchronicity. The study hypothesizes a negative association between ESG performance and stock price synchronicity implying that stocks with comparatively better ESG score are less vulnerable to systematic risk in the market.
 The present study selects all the constituents of BSE-ESG Index as the sample from the year 2013 to 2019. The data relating to ESG scores are sourced from yahoo.finance.com and other economic variables data has been collected from CMIE prowess database. The results of the analysis revealed a significant negative impact of ESG score of the sample companies on their stock price synchronicity. The results indicate that one unit increase in ESG score results in -0.021 decrease in synchronicity. The results are in line with extant literature (Gelb & Strawser, 2001; Durnev et al., 2004). Results are robust to alternative definitions of synchronicity and ESG scores. So, it can be inferred that reporting of ESG scores of the stock improves the informational efficiency of the stocks and makes then resilient to market risks.

Purpose This study aims to examine the impact of sustainable practices as proxied by the environmental, social and governance (ESG) score on capital structure. It also investigates whether ESG performance influences the speed of adjustment (SOA) to target leverage in firms. Design/methodology/approach The sample covers 116 non-financial firms listed on the main stock exchanges from five Southeast ASEAN countries (Bursa Malaysia, Indonesia Stock Exchange, Philippines Stock Exchange, Singapore Stock Exchange and Stock Exchange of Thailand) over the period 2012–2019. The study adopts the OLS regression and system-GMM estimators to perform the data analysis. Findings The authors show that the ESG score is positively associated with book leverage, suggesting that firms increase their debt capital through sustainable practices. However, they find that the ESG score is negatively associated with market leverage across our model estimations. The authors also reveal that environmental, social and governance pillar scores produce about 7.82%, 2.88% and 0.47% SOAs, respectively, higher than the SOA of the traditional SOA without the ESG factor. The aggregate ESG score has about 3.41% SOA higher than the baseline SOA without the ESG factor. Practical implications This study is of interest to investors, corporate firms and policymakers. The study demonstrates that the ESG score increases the firm’s SOA to target leverage. By disaggregating the ESG score, the authors establish that ESG pillar scores produce higher SOAs than the traditional SOA (without ESG), with the environmental score inducing the fastest SOA. Practically, the study implies that environmentally sustainable activities reduce environmental transaction costs, benefit firms through better information transparency and enhance a trustful climate between the firm and suppliers of capital. Therefore, this study demonstrates that firms do not only incur the cost of disseminating ESG information but also benefit from lower information asymmetry and a higher SOA with better tax-deductible advantages. Social implications The findings have combined advantages for both stakeholders and directors who monitor and manage the firms’ resources to improve the quality of ESG practices and initiatives. Originality/value To the best of the authors’ knowledge, this study is among the first to establish that sustainable practices induce higher debt capital. Secondly, unlike prior research focusing on the cost of capital, the authors examine whether ESG performance affects capital structure patterns. Thirdly, it documents the extent to which sustainable practices influence the SOA towards target leverage in firms. The authors contribute to corporate finance literature that firms reach faster to their target leverage in the presence of ESG performance. Theoretically, through the notion of the stakeholder proposition, the study establishes that the firms’ pursuance of stakeholder goals further enhances the prediction of the trade-off theory.

PurposeThis article aims to analyse the relationship between the environmental, social and governance (ESG) score and the cost of capital of 600 large, mid and small capitalization companies across 17 countries that are component of the EURO STOXX 600 Index. By examining whether ESG has an impact on the cost of capital, this article contributes to the solutions to improve the impact of organizations and societies on sustainable development. The article further examines whether the effect is because of the environmental, social and/or governance components. In addition, the article analyses which WACC component (i.e. the cost of equity, the cost of debt, the beta or the leverage ratio) is affected. Furthermore, this article analyses whether a high ESG score can substitute for a weaker legal environment.Design/methodology/approachThe results were obtained by using ordinary least squares panel data modelling to analyse the relationship between the ESG score and the cost of capital. The sample consists of companies that are part of the STOXX Europe 600 Index over the period 2018–2021, which is composed of 600 companies, including large, mid and small capitalization firms listed across 17 countries. The sample finally includes 1,960 firm-year observations.FindingsCompanies with a higher ESG score tend to have a lower cost of capital, but this relationship holds only for firms domiciled in countries with a weaker legal environment. In addition, these firms should not only increase their ESG score to create a more sustainable environment but also to reduce their cost of debt. Environmental and social factors have a significantly negative impact on the cost of capital only in countries with a weaker legal environment, while the governance component positively impacts the cost of capital by allowing firms to borrow more.Research limitations/implicationsThere is not yet a standardized taxonomy to define ESG, making the study dependent on commercial data providers.Practical implicationsThe new insights can be used by companies domiciled in countries with weaker legal environments to reduce their cost of capital. The results also allow us to know on which components of the ESG score to focus. It can also help policymakers, specifically those in countries with a weaker legal environment, to provide incentives to further stimulate ESG investments and disclosure, thereby contributing to a more sustainable society.Social implicationsTo achieve the sustainable development goals put forward by the United Nations, it is important for firms to invest in ESG projects. It is nevertheless insightful to know whether these ESG investments, which are currently observed as a cost, also provide benefits to firms and in which countries. If firms clearly see the advantages of investing in ESG projects, they are likely to proactively engage in them.Originality/valueThis article is the first, to the best of the authors’ knowledge, to focus on 17 European countries, thereby capturing divergent legal environments. This setting allows us to answer the main novel research question, namely, whether the ESG score can act as a substitute for the legal environment in which the company is domiciled. The article also goes further than previous articles by examining whether the effect is because of the environmental, social and/or governance component and whether these impact the components of the weighted cost of capital, namely, the cost of equity, the cost of debt, the beta or the leverage ratio of the companies.

This study investigates the factors contributing to the growth of an organisation's ESG (Environmental, Social, and Governance) business scale using the Vector Error Correction Model (VECM). The research analyses Bank of America's ESG strategies and it has been found that the ESG benchmarks held by the bank have strengthened in recent times. The findings indicate a negative correlation between the ESG score and key profitability indicators for Bank of America, suggesting that increased spending on ESG activities decreases net profit. This result can be attributed to the non-commercial nature of ESG activities, which are primarily costs subtracted from the gross profit figure. The VECM analysis also reveals a statistically significant adjustment in the long-term equilibrium relationships between the ESG score and Bank of America's net profit. Additionally, short-term negative correlations between ESG and profitability benchmarks affect long-term relationships. On the basis of VECM model that has been adopted in this study, the research establishes statistically significant relationships between Bank of America's ESG score and net profit, demonstrating short-term adjustments towards long-term relations between ESG score and net profit. Overall, this paper highlights the importance of understanding the dynamics between ESG activities and profitability in the banking sector, stressing the need for maintaining an effective balance between ESG activities and financial performance to ensure long-term sustainability.

PurposeThis paper aims to examine the link between environmental policies and financial markets, with a particular focus on the banking sector. The assessment of banks is based on their environmental impact, social responsibility and governance practices.Design/methodology/approachA panel data regression model is used to examine the link between ROE and systematic risk, on the one hand, and European banking institutions’ ESG scores and its environmental, social and governance (ESG) pillar scores, as well as other financial indicators, on the other hand. The timeframe of the research is 10 years and includes 61 European banks, thus providing an extensive review of existing literature and empirical analysis to reveal the complex link between environmental policies, ESG performance and financial performance in the banking sector.FindingsBetter ESG performance is associated with lower ROE but also lower systematic risk for European banks. An improved environmental and social performance leads to higher ROE and lower beta coefficients. However, higher governance scores depress ROE.Originality/valueThe paper aims to contribute to the existing literature by showcasing a complex link between ESG practices and financial performance, focusing extensively on the banking sector. This research analyses how ESG initiatives, when implemented within banks, influence key financial metrics such as profitability, risk management and long-term sustainability. It also examines the unique challenges and opportunities that banks face in aligning ESG goals with financial objectives. Through this thorough analysis of the banking sector, the study adds depth to the current discourse on the broader impact of ESG practices on the financial performance of companies.

This study aims to explore whether ESG (Environmental, Social, and Governance) scores incentivize the compensation of general managers in publicly traded companies in Taiwan. We analyzed data from 2209 companies during the period from 2015 to 2020, ultimately selecting 2188 company samples with complete ESG evaluations and general manager compensation data for research. Our primary finding is that while there is a significant positive correlation between the number of Executive Compensation and ESG scores, there is no clear relationship between the compensation of the general manager and ESG scores. Additionally, we found that the size of the company and the debt ratio significantly affect ESG scores. Our research results provide preliminary empirical evidence for companies to formulate ESG-oriented compensation strategies and suggest future research to delve into the complex relationship between Executive Compensation and ESG performance.