Environmental, Social And Governance Ratings Research Articles

Relationship of ESG Scores with Firm Performance: A Study of Indian Listed Companies

This study seeks to explore whether there is a substantial correlation between corporations’ ESG (Environmental, Social and Governance) ratings and their profitability, specifically return on assets (ROA). It aims to determine whether this correlation is positive, negative or neutral in nature. The research methodology involved an investigation of companies listed on the BSE500 stock index, analysing their ESG ratings for the years 2020 and 2021. The final dataset encompassed 148 companies, resulting in 296 observations for the two years, sourced from the Ace equity database. Panel regression analysis was employed to assess the link between ESG ratings (the independent variable) and ROA (the dependent variable), while also considering financial leverage and firm size as control factors. The results revealed a statistically significant negative linkage between ESG ratings and firm performance, as indicated by ROA, at a 5% significance level. The negative relation between ESG scores and firm performance (ROA) could be attributed to several factors. Organisations that prefer ESG initiatives often incur additional costs in areas like environmental compliance and employee welfare, which can temporarily reduce profitability. Moreover, ESG-conscious firms may make long-term investments that take time to generate returns, impacting short-term ROA. Additionally, stringent ESG standards may deter certain investors or customers, affecting revenue. However, over the long run, robust ESG practices can enhance sustainability and resilience, potentially leading to improved performance and risk mitigation.

An Analysis of the Influence of ESG Rating Divergence on Investor Sentiment

The global financial markets have experienced a significant development with the emergence of the notions of "sustainable development" and "green investing". This development involves the integration of Environmental, Social, and Governance (ESG) information into investment decisions. A significant advancement in the worldwide financial market is the integration of ESG (Environmental, Social, and Governance) data into investing choices. ESG ratings have emerged as a significant benchmark for investors in this scenario. However, there is now a considerable disparity in the rating outcomes provided by various rating agencies for particular companies. This disparity distorts the ratings and thus triggers exaggerated reactions from investors. This study investigates the influence of differences in ESG ratings on investor sentiment and its underlying mechanism using a sample of businesses listed on the A-share market in Shanghai and Shenzhen between 2015 and 2022. Research has shown that when there is a significant difference in ESG ratings, it has a detrimental effect on investor sentiment. This means that when there is a large divergence in ESG ratings, it negatively affects investor sentiment, leading to a decrease in their evaluation and confidence in the company. Empirical investigations demonstrate that the focus and consideration given by analysts and research reports play a crucial role in how differences in ESG ratings impact investor sentiment. Additional investigation reveals that the adoption of GRI standards and the verification of ESG reports by third-party entities can somewhat reduce the influence of divergence on the fluctuation of investor mood, as well as enhance investor acknowledgment of revealed information. The paper examines the influence of disagreement in ESG ratings on investor mood, contributes to existing research on ESG ratings dispute, and presents empirical evidence to support the development of China's ESG ratings system and the establishment of a "rational" investment market.

Evaluating the Relationship between Corporate Social Responsibility Incentives and Financial Outcomes of Corporations Operating in the GCC Region

Corporate Social Responsibility (CSR) is a concept that has gained traction in strategic management over the years, and it is continuously being cited as important for both the business and the business shareholders. Although there is much research examining the general CSR-CFP relationship, there is very little, if any, research that investigates the firms operating in GCC countries, which is the main objective of this study. One of the new methods used to measure Corporate Social Responsibility engagement in any organisation is the ESG rating. The ESG rating measures the Environmental, Social and Governance (ESG) dimensions of Corporative Social Responsibility engagement. This research uses the stakeholder theory framework, together with the agency theory framework to find the impact that CSR has on the financial performance of organisations. In the research, we used annual data of ESG and financial ratios of 98 publicly listed firms operating in the Gulf Cooperation Council, from 2008 to 2018. Regression analysis was used to test the impact of ESG scores on the financial performance of organisations. According to the results, the Environmental, Social, and Governance dimensions have a significant impact on the financial performance of organisations operating in the Gulf Cooperation Council. This study contributes to the body of knowledge on the relationship between CSR performance and Financial Performance.

Do ESG ratings inhibit corporate leverage manipulation? The moderating effects of internal and external supervision

Purpose This paper aims to investigate the relationship between corporate environmental, social and governance (ESG) ratings and leverage manipulation and the moderating effects of internal and external supervision. Design/methodology/approach The authors draw on a sample of Chinese non-financial A-share-listed firms from 2013 to 2020 to explore the effect of ESG ratings on leverage manipulation. Robustness and endogeneity tests confirm the validity of the regression results. Findings ESG ratings inhibit leverage manipulation by improving social reputation, information transparency and financing constraints. This effect is weakened by internal supervision, captured by the ratio of institutional investor ownership, and strengthened by external supervision, captured by the level of marketization. The effect is stronger in non-state-owned firms and firms in non-polluting industries. The governance dimension of ESG exhibits the strongest effect, with comprehensive environmental governance ratings and social governance ratings also suppressing leverage manipulation. Practical implications Firms should strive to cultivate environmental awareness, fulfil their social responsibilities and enhance internal governance, which may help to strengthen the firm’s sustainability orientation, mitigate opportunistic behaviours and ultimately contribute to high-quality firm development. The top managers of firms should exercise self-restraint and take the initiative to reduce leverage manipulation by establishing an appropriate governance structure and sustainable business operation system that incorporate environmental and social governance in addition to general governance. Social implications Policymakers and regulators should formulate unified guidelines with comprehensive criteria to improve the scope and quality of ESG information disclosure and provide specific guidance on ESG practice for firms. Investors should incorporate ESG ratings into their investment decision framework to lower their portfolio risk. Originality/value This study contributes to the literature in four ways. Firstly, to the best of the authors’ knowledge, it is among the first to show that high ESG ratings may mitigate firms’ opportunistic behaviours. Secondly, it identifies the governance factor of leverage manipulation from the perspective of firms’ subjective sustainability orientation. Thirdly, it demonstrates that the relationship between ESG ratings and leverage manipulation varies with the level of internal and external supervision. Finally, it highlights the importance of governance in guaranteeing the other two dimensions’ roles by decomposing overall ESG.

ESG Performance and Enterprise Value in China: A Novel Approach via a Regulated Intermediary Model

ESG (environmental, social, and governance) performance increasingly influences enterprise valuation. While researchers debate about the precise nature of this influence, most assume a positive linear relationship. This study introduces a novel ESG responsibility performance metric utilizing a regulated intermediary model using representative data synthesized from leading ESG rating agencies in China. It investigates the pathways of this influence and examines the mediating effects of corporate reputation, stakeholder engagement, and regulatory compliance. The findings reveal an inverted U-shaped relationship between ESG performance and enterprise value, moderated significantly by financing constraints. These findings remain robust after accounting for potential endogeneity using instrumental variables. Heterogeneity analysis highlights that this inverted U-shaped relationship depends on the industry characteristics and ownership structures, particularly noticeable in non-polluting and non-state-owned enterprises. Moreover, enhanced ESG performance correlates with a reduced cost of equity financing, thereby augmenting enterprise value. Financial institutions might consider employing innovative financial instruments to diversify their enterprise financing channels and effectively bolster ESG-focused enterprises.

Unveiling the ESG-dividend nexus: the moderating role of investor protection and regulatory enforcement

PurposeThe mounting focus on environmental, social and governance (ESG) factors in business has sparked substantial curiosity in understanding the nexus between ESG and the companies’ strategic decisions. This study aims to investigate the influence of firms’ ESG disclosure scores on their dividend payout. Furthermore, it examines the nuanced dynamics of this relationship by exploring the moderating role of the country’s investor protection regulations and regulatory enforcement.Design/methodology/approachThis study uses pooled ordinary least square regression with year, industry and country effects. It analyzes a balanced panel data set of 192 non-financial firms drawn from the primary equity indices of BRICS nations. This study examined the data of six years spanning 2015–2020.FindingsThe findings discover a significantly positive relationship between ESG scores and dividend payout ratio, conveying that firms with higher ESG scores allocate more of their profits as dividends. Furthermore, the finding reveals that country-level robust investor protection and effective regulatory enforcement mechanisms undermine the positive association between ESG ratings and payouts of dividends, suggesting that the ESG disclosure of firms operating in a setting characterized by enhanced investor safeguards and stricter regulatory oversight will exert less influence on their dividend decisions.Originality/valueTo the best of the authors’ knowledge, this is the first study to concentrate on the ESG–dividend nexus in the BRICS countries. Furthermore, this study used each country’s investor protection index and regulatory enforcement scores to comprehend the influence of country-level legal frameworks in shaping the relationship between ESG and dividend decisions, thus adding value to the existing literature on corporate sustainability.

EXAMINING THE EFFECTS OF AND MODERATING INFLUENCES ON ENVIRONMENTAL, SOCIAL AND GOVERNANCE INFORMATION DISCLOSURE ON VALUE-AT-RISK: EVIDENCE FROM CHINESE LISTED COMPANIES

Generally, research on the effects of Environmental, Social and Governance (ESG) information disclosure on listed companies is primarily limited to developed countries. By contrast, the current study is located in China and analyses whether ESG reduces the downside risk of listed companies in China, and whether political connections and institutional investors moderate this relationship. This study uses Chinese A-share listed companies from the Shanghai and Shenzhen stock markets from 2010 to 2021 as research samples. Results demonstrated that the inhibitory effect of enhancing ESG performance on enterprise risk is more significant in non-heavy polluting industries, non-state-owned enterprises, and enterprises in areas with low levels of marketisation. This study explores the economic implications of ESG performance from a Value-at-Risk (VaR) perspective, enriching the relevant research on ESG rating in China and providing a fresh perspective to better elucidate the economic significance of companies improving their ESG performance. This study introduces institutional investors and political connections as two moderating variables to analyse their effect on the relationship between ESG performance and VaR. In addition, heterogeneity analysis is carried out in combination with the industry, region, and ownership nature of listed companies to test the “insurance” and “information” effects of ESG performance, to provide decision-making references for investors, enterprise managers, and regulators.

ESG rating and labor income share: Firm-level evidence

This study investigates the relationship between ESG (environmental, social, and governance) ratings and labor share at the firm level. Using data from Chinese A-share listed firms from 2011 to 2021, we find a significantly positive relationship between the two. Furthermore, we document that state-owned enterprises do not demonstrate a strong sense of political and social responsibility in their employee recruitment projects, while companies with high ESG ratings in East China could increase their labor share due to less stringent financial constraints. Finally, the employment-creation effect of ESG ratings is one of the important channels for improving labor share. Considering the increasing awareness of ESG concepts and the boom in ESG investing, our findings hold significant relevance for employees, directors, investors, and public policymakers.

Does ESG performance affect the systemic risk sensitivity? Empirical evidence from Chinese listed companies

PurposeThis paper aims to examine the relationship between environmental, social and governance (ESG) performance and systemic risk sensitivity of Chinese listed companies. From the consumer loyalty and investor structure perspectives, the relationship between ESG performance and systemic risk sensitivity is analyzed.Design/methodology/approachSince Morgan Stanley Capital International (MSCI) ESG officially began to analyze and track China A-shares from 2018, 275 listed companies in the SynTao Green ESG testing list for 2015–2021 are selected as the initial model. To measure the systematic risk sensitivity, this study uses the beta coefficient, from capital asset pricing model (CPAM), employing statistics and data (STATA) software.FindingsThe study reveals that high ESG rating companies have high corresponding consumer loyalty and healthy trading structure of institutional investors, thereby the systemic risk sensitivity is lower. This paper reveals that companies with high ESG rating are significantly less sensitive to systemic risk than those with low ESG rating. At the same time, ESG has a weaker impact on the systemic risk of high-cap companies than low-cap companies.Practical implicationsThe study helps the companies understand the influence of market value on the relationship between ESG performance and systemic risk sensitivity. Moreover, this paper explains explicitly why ESG performance insulates a firm’s stock from market downturns with the lens of consumer loyalty theory and investor structure theory.Originality/valueThe paper provides new insights on the company’s ESG performance that significantly affects the company’s systemic risk sensitivity.

ESG RATING AND BANK FINANCING — EMPIRICAL EVIDENCE FROM THE CHINESE CAPITAL MARKET

This study examines how banks perceive companies’ environmental, social and governance (ESG) performance. Using a sample of Chinese listed corporations for the period 2009–2019, we find that banks value the ESG performance of emerging market companies. The higher a company’s ESG rating, the more likely it is to receive a loan. Moreover, it is easier to obtain long-term bank loans with a lower cost. Compared with state-owned enterprises (SOEs), ESG rating among private companies is more helpful for enterprises to obtain bank loans. Additionally, the positive effect of an ESG rating on obtaining bank loans is stronger in regions with greater banking competition landscape.

An Empirical Study on the Influence of ESG Ratings on Earnings Management among Listed Companies in China

This study examines the influence of ESG (Environmental, Social, and Governance) ratings on the financial performance of listed companies in China from 2011 to 2021. With a sample of 21,289 A-share listed companies, the study employs a fixed-effects panel analysis, focusing on Return on Assets (ROA) and Return on Equity (ROE) as key financial indicators. The research incorporates comprehensive ESG ratings from the China Securities Index Company and Wind database, alongside control variables like company size, age, and industry. The findings reveal that ESG ratings significantly and positively affect financial performance, with companies exhibiting higher ESG scores demonstrating better asset management and profitability. The robustness of these results is confirmed through various tests, including substituting dependent and explanatory variables, and addressing multicollinearity concerns. The study emphasizes the increasing significance of ESG factors in the financial well-being of businesses. It demonstrates the connectedness between social responsibility and economic success. This study supports the use of stakeholder theories in examining the influence of ESG ratings on earnings management among listed companies. However, its scope is limited to China, making the findings potentially unsuitable for other developing nations.

The Relationship Between ESG Rating and Firm Value—Evidence from Companies Listed on Polish Capital Market in the WIG-ESG Index

Abstract The literature are abound with studies on the impact of environmental, social, and governance (ESG) factors on a company‘s value, or more broadly, on its financial performance. However, most analyses concern developed markets, mainly because the largest rating agencies operate in these markets, as well as because these are markets where ESG awareness and regulations have developed much faster. In developing markets, the number of studies in this area is disproportionately smaller. Therefore, the purpose of this article is to examine the relationship between the environmental, social, and governance ratings (ESGR) of Polish listed companies included in the WIG-ESG index and their value. This study covered 36 companies listed in WIG-ESG in the period of 2019–2023. We used market data, financial data from examined companies and ESG data provided by Refinitive. The empirical results were negative but a non-statistically significant influence of ESGR and a company’s value. Further analysis indicated that none of the sub-ratings (environmental rating (ER), social rating (SR) and governance rating (GR)) had significant impact on value. The Polish market does not seem to recognize the potential of ESG factors in building the long-term value of companies and believes that the costs of ESG factors outweigh the benefits. Investors seem to disregard or underestimate ESG criteria when valuing companies, which may seem irrational when looking at the long-term effects of ESG factors. This article contributes to the existing literature by being part of the research on ESG factors and company value. The article expands the field of analysing the relationship between ESGRs and corporate value by examining this relationship not only using the overall ESGR, but also its individual sub-ratings. We also attempt to answer the question of where the channels of transmission of ESGRs on the value of the company are located, and which areas affect ratings. To the best of our knowledge, this is the first study of this type for the Polish market.

Интеграция ESG-повестки в регионы Российской Федерации

In recent years, there has been an increased interest in non-financial indicators, in particular environmental, social and managerial factors representing the concept of ESG (Environmental, Social and Governance). The ESG concept allows for a comprehensive assessment of long-term sustainability, which goes beyond traditional financial metrics. The ESG concept represents a comprehensive assessment of long-term sustainability that goes beyond traditional financial metrics. The development of indicators to quantify the impact of ESG agenda has allowed extensive empirical research at the micro level. However, there remains insufficient research on the impact of ESG at the macro level. This article examines whether the application of the ESG indicator system can affect the economic attractiveness of Russian regions. The study covers 85 regions of the Russian Federation (excluding the Donetsk People's Republic, Luhansk People's Republic, Zaporozhskaya oblast and Khersonskaya oblast) for the period from 2014 to 2022. To conduct the study, descriptive analysis and linear regression of panel data were used to investigate the relationship between ESG indicators and the economic attractiveness of Russian regions. The results of the study showed that the integration of the ESG indicators system affects the economic attractiveness of regions. Based on the proposed ESG system, it is possible to compile a regional index and an ESG rating to assess the attractiveness of regions and the quality of life. During this study, limitations were identified and directions for future research were proposed.

기업의 ESG 활동이 이익조정에 미치는 영향

[Purpose]This study emphasizes the importance of ESG (Environmental, Social, and Governance) management, proposing that it provides incentives for companies to achieve transparent and sustainable management. The study aims to analyze the impact of ESG management on corporate earnings management, particularly focusing on the effect of one financial characteristic, the Return on Sales (ROS), and how ESG influences this relationship. [Methodology]The study utilizes ESG rating data publicly disclosed by the Korea ESG Standards Authority from 2015 to 2022, focusing on manufacturing companies with available ESG ratings. The discretionary accruals were measured using the Jones model as the earnings management variable, and ROS was used to reflect financial characteristics. [Findings]The study found that ESG management tends to reduce corporate earnings management activities. Moreover, while companies with higher ROS were found to engage in more earnings management, the interaction between ROS and ESG management, particularly in terms of ESG integration, environmental (S), and governance (G) components, showed a negative relationship with earnings management. This suggests that ESG management contributes to reducing earnings management. [Implications]The study suggests that ESG management plays a crucial role in enhancing financial transparency and ethical standards in corporations. It was observed that companies with higher total sales profitability, when implementing ESG management, tend to show a decrease in earnings management activities. This indicates that ESG management can be a vital tool for enhancing financial soundness and transparency.

Towards a More Reliable ESG (Environmental, Social, and Governance) Assessment Framework: Lessons from the PRI Initiative

In recent years, green investments and ESG (Environmental, Social, and Governance) principles have gradually become the focus of the industry's attention. However, the future of ESG still has some uncertainties, and the diversity of ESG data and metrics has led to challenges in comparing ESG performance across companies, making it complex to determine the relevance and substantive ESG issues related to financial performance. This paper explores the evolution and challenges of ESG investments and proposes principles for ESG rating agencies to follow, originating from the PRI (Principles for Responsible Investment). This study recommends that rating agencies adopt a comprehensive assessment approach, considering a company's environmental, social, and governance performance and engaging with companies to obtain more comprehensive and reliable data. Additionally, rating agencies should maintain transparency, disclosing precise methods and data sources to enhance the credibility of ESG ratings. Most importantly, rating agencies must continuously improve their rating methodologies to reflect changes in the market and ESG practices, encouraging other rating agencies to adopt more consistent ESG assessment methods for a more sustainable investment practice and sustainable development in the financial industry.

Shedding light on the relationship between ESG ratings and systematic risk

The role of environmental, social and governance (ESG) factors is growing in importance in finance studies. However, the relationship of this role with systematic risk is largely controversial and underinvestigated. We study this relationship considering a 17-year time span from 2005 to 2021 using a sample of all active constituent companies of the NYSE, with a final dataset of 791 firms for a total of 7,177 firm-year observations. The findings indicate that the relationship between overall ESG score and systematic risk takes an inverted U-shape. These results are solid considering ESG components at both an aggregate and disaggregate level. When companies invest little in ESG, they could be viewed as having more funds to allocate in, presumably, more rewarding projects and are more flexible and less risky, at least in the short term. However, beyond a certain threshold, more attention to sustainability facets results in lower systematic risk. These findings are also supported by checking them through different robustness tests.

Integration of ESG Factors in Portfolio Management: International Trends and Practices

The promotion of the concept of sustainable development has made ESG (Environmental, Social, and Governance) investing a significant trend in today's investment landscape. This article elaborates on the relevant concepts of ESG investing, analyzes the global development of ESG investing, explores the relationship between ESG ratings and company financial and non-financial performance, and suggests the correlation between rating systems and capital costs, employee satisfaction, and more. Based on this foundation, the article discusses the specific application of ESG factors in international portfolio management, including ESG integration methods, portfolio construction strategies, and risk management. Research indicates that the consideration of ESG factors provides a more comprehensive dimension for investment decision-making, emphasizing sustainability in investment portfolios, and offering valuable insights for investors and businesses.

Do ESG ratings and COVID-19 severity score predict stock behavior and market perception? Evidence from emerging markets

PurposeThe purpose of this study is to examine the impact of firm environmental, social and governance (ESG) rating scores on market perception and stock behavior from 2017 to 2021 while controlling for COVID-19 severity score.Design/methodology/approachThe authors used panel regression models with robust standard errors based on cross-country and cross-industry sample of 1,324 ESG firms from 25 emerging countries across four regions. Four separate regression analyses are used. Hausman test is used to determine whether fixed-effect (FE) or random-effect approaches should be used in regression models. Lagrange multiplier test is used to test for time FEs, and F-test for individual effects to choose between pooled ordinary least squares model and FE. Two-unit root tests are conducted to check stationarity. Heteroskedasticity and serial correlation were controlled through a robust covariance matrix estimation.FindingsThe authors provide evidence that the stakeholder theory persists in emerging countries. Overall, the results suggest that firms’ stock behavior is positively associated with the level of environmental and social performance in the region. However, the results do not provide empirical evidence to support the link between ESG performance and stock market perception proxied by the price-to-sales ratio. The results suggest that Refinitiv and Bloomberg ESG rating scores have a positive impact on stock performance in emerging markets, albeit the Bloomberg rating score is insignificant.Practical implicationsFavorable impact of environmental and social performance on stock performance suggests that policymakers should take initiatives to raise awareness toward investments in ESG projects. Evidence shows that ESG stock performance in emerging markets does not insulate firms from the COVID-19 severity. Furthermore, this study highlights the inconsistency in calculating the ESG ratings, therefore, a more standardized approach is recommended to support investors seeking sustainable investments.Social implicationsThe findings have social implications for investors with proenvironmental preferences and nonpecuniary motives for ethical investments. Asset fund managers should develop ESG investment strategies to promote investor preferences that are linked to the proenvironmental and prosocial attitudes by increasing their investments in stocks of firms that behave ethically and support the environment. Furthermore, the findings show that investors pay a price for ethical and socially responsible investments as they are evaluating the environmental and social activities, hence, the firm ESG profile influences equity valuation and risk assessment.Originality/valueThe study extends the literature and provides evidence from the unique setting of emerging markets by analyzing the relationship between ESG rating scores and the COVID-19 severity scores on one hand, and stock behavior and market perception on the other.

The Impact and Challenges of ESG Investment Philosophy on Chinese Capital Market and Investment Practice

Environmental, social and governance (ESG) investment philosophy has gained significant traction in recent years. This philosophy focuses on investments in companies that prioritize environmental sustainability, social responsibility, and good corporate governance practices. This paper examines the impact of ESG investment philosophy on the Chinese capital market and investment practices. It highlights the growing interest in ESG investments in China and the challenges that arise in implementing ESG practices. Additionally, this paper discusses the need for increased transparency and standardization in the ESG information disclosure and rating system, as well as the importance of education and training for investors and professionals in the financial sector. It also explores the potential benefits of ESG investment, such as long-term financial performance, and positive social and environmental impacts. Overall, this essay concludes that the ESG investment philosophy presents both challenges and opportunities for the Chinese capital market and investment practices, and that continued efforts are needed to foster sustainable investing practices in China.

Literature Study of ESG in Corporate Investment and ESG Rating Status

This paper explores the challenges and solutions related to implementing ESG (Environmen-tal, Social, and Governance) systems within China's traditional industrial sector and pro-vides insights into future development trends. The adoption of ESG practices in traditional industries in China faces obstacles such as limited awareness, financial constraints, and dif-ficulties in measuring impacts accurately. To address these challenges, the paper suggests raising awareness, promoting education, and fostering a culture of sustainability among in-dustry stakeholders. Collaboration between government bodies, industry associations, and financial institutions is also proposed to provide financial incentives and support for ESG adoption. Standardizing ESG metrics and reporting frameworks can enhance transparency and comparability. Looking ahead, the integration of advanced technologies like AI, block-chain, and IoT can facilitate data analysis and decision-making. Public-private partnerships and industry collaborations can accelerate innovation and knowledge sharing. Despite the challenges, proactive measures such as awareness building, financial support, and standard-ized frameworks can lead to a sustainable future. Cooperation between government, indus-try, and society is crucial in embracing ESG advantages, fostering responsible practices, and contributing to a greener and more inclusive economy.