Abstract
In recent years, a renewed interest in value creation for stakeholders has been witnessed in different contexts. Different tools have been proposed to try to grasp and measure such value(s) but, in many cases, the main perspective remains that of the shareholders. To contribute to the field of research that aims to discuss novel ways of thinking about value creation measurement, this paper addresses the relationship between ESG (Environmental, Social, and Governance) ratings and Value Added, as proxies of value creation and distribution for stakeholders. In particular, we consider whether ESG ratings are able to capture companies that are characterized by their capacity for generating higher Value Added for stakeholders. Our analysis uses the frontier methodology combined with means comparison. Data from 2018 were downloaded from EIKON, for all companies within the Euro zone and for all sectors (1932 companies, of which 399 held an ESG rating, compared with 1533 without ESG analysis). Our analysis reveals that, although ESG is theoretically considered a good social responsibility proxy, ESG indices cannot be used as an indicator of value creation for stakeholders but, rather, must be considered as only one of the components. This implies a need to review the limitations of ESG ratings and establish that the relevant indices are not suitable for use in universal or absolute decision-making.
Highlights
On 19 August 2019, a group of CEOs from large companies in the U.S signed a new Statement on the Purpose of the Corporation, in which they maintained that the purpose of a corporation is no longer “only” maximizing the returns of shareholders but, rather, to serve the interests of all of their stakeholders [1]
Given that ESG ratings have become increasingly used by different actors—in particular, investors—to evaluate and make decisions, the specific objective of this paper is to consider whether ESG ratings are capable of capturing companies with higher value creation for stakeholders
We expected a positive and robust relationship between ESG ratings and Value Added, where a higher ESG is related to more Value Added created by companies
Summary
On 19 August 2019, a group of CEOs from large companies in the U.S signed a new Statement on the Purpose of the Corporation, in which they maintained that the purpose of a corporation is no longer “only” maximizing the returns of shareholders but, rather, to serve the interests of all of their stakeholders [1]. This new step has been welcomed as a clear and strong signal that “the tide has shifted, replacing shareholder primacy with a multistakeholder purpose for corporations” [2] Keynote papers regarding stakeholder business ethics (see [6,7,8,9,10,11]) focused more on ethics in managerial and organizational contexts than on valuation, accounting, and accountability.
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