The Environmental, Social, Governance, and Financial Performance Effects on Companies that Adopt the United Nations Global Compact

Eduardo Ortas,Ainhoa Garayar,Igor Álvarez

doi:10.3390/su7021932

Abstract

This paper aims to investigate companies’ environmental, social, governance (ESG), and financial implications of their commitment to the United Nations Global Compact (UNGC). The focus is placed on companies operating in the three countries with the highest number of UNGC participants: Spain, France, and Japan. The results clearly reveal that adoption of the UNGC often requires an organizational change that fosters stakeholder engagement, ultimately resulting in improvements in companies’ ESG performance. Additionally, the results reveal that ESG performance has a significant impact on financial performance for companies that adopted the principles of the UNGC. These findings provide both non-financial and financial incentives to companies to commit to this voluntary corporate social responsibility (CSR) initiative, which will have important implications on companies’ strategic management policies that aim to foster sustainable businesses and community development. Finally, the linkages between the UNGC-committed companies’ ESG and financial performance may be influenced by geographical spread, mainly due to the appearance of differences in the institutional, societal, and cultural settings.

Highlights

During the last 20 years, several corporate social responsibility (CSR) voluntary initiatives have emerged asking corporations to adhere to a predefined set of norms and values [1]
Corporate social responsibility initiatives are expected to systematically encourage cultural and managerial changes in companies committed to sustainable development, human rights, and social well-being
This work analyzes the possible bidirectional relationship between firms’ ESG performance and their financial performance (CFP) through several panels of data covering companies operating in the three countries that have the highest rate of companies committed to the United Nations Global Compact (UNGC): Spain, France, and Japan

Summary

Introduction

During the last 20 years, several corporate social responsibility (CSR) voluntary initiatives have emerged asking corporations to adhere to a predefined set of norms and values [1]. Examples of these initiatives are the Global Reporting Initiative (GRI) [2], Social Accountability 8000 [3], and the ISO. Among this catalog of voluntary CSR initiatives, the United Nations Global Compact (hereafter, the UNGC) is one of the most prominent and widespread CSR initiatives implemented by companies around the world [5,6].

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Conclusion