Environmental, Social And Governance Scores Research Articles

Taking ESG strategies for achieving profits: a dynamic panel data analysis

PurposeThe goal is to investigate the relationship between financial performance and environmental, social and governance (ESG) indicators and disclosures for a sample of Latin American firms.Design/methodology/approachDynamic panel data regressions are used to analyze a sample of 114 companies listed on the Latin American Integrated Market, MILA (Chile, Colombia, Mexico and Peru) for the period 2011–2020. The Altman Z-score and Piotroski F-score are used as indicators of the probability of default and comprehensive financial strength. Models are developed in which the relationship between economic value added (EVA) and Jensen’s alpha are evaluated against firms’ ESG practices.FindingsA direct relationship between ESG strategies and financial performance was found. Better practices and transparency in ESG are related to lower probability of bankruptcy, greater financial strength, greater EVA and superior risk-adjusted returns.Research limitations/implicationsESG data were obtained from the Bloomberg system based on a methodology that may differ from other sources. The sample covers four Latin American countries and large corporations. Independent variables were selected for their perceived validity, given their frequent use in previous studies.Practical implicationsEvidence for company management regarding the importance of strengthening ESG practices and reporting should be part of their balanced scorecards. For investors, the results support the importance of evaluating ESG practices in asset selection.Originality/valueThe present study is the first research to present empirical evidence on the relationship between ESG scores and disclosures for MILA countries, using a comprehensive set of financial performance indicators (Altman Z-scores, Piotroski F-scores, EVA and Jensen’s alpha).

Sustainable investing and ownership structure in international shipping companies

ABSTRACT Sustainable investing has been gaining momentum in recent years. This paper investigates the relationship between ownership structure, sustainability performance, and financial performance using a structural equation modelling (SEM) approach in the shipping sector by utilizing 56 listed shipping companies’ financial and Environmental, Social and Governance (ESG) ratings information. The results provide evidence that institutional ownership is positively associated with ESG scores, particularly from firms listed in the U.S. suggesting these investors’ consciousness in ESG investments in shipping stocks. Conversely, family ownership is negatively related to ESG ratings, while public ownership is more financially performance-driven, but not ESG-conscious. Additionally, firms with larger market capitalization tend to achieve higher ESG scores. However, this study finds no statistically significant relation between sustainability and financial performance. This research enhances the understanding of the investment behavior in the international shipping sector and has implications for investment strategy, investor relationship and policy development.

Stopgap or sustainable strategy? The impact of China’s green credit guidelines policy on corporate ESG performance

Purpose This paper aims to investigate the impact of China’s Green Credit Guidelines (GCG) policy on the environmental, social and governance (ESG) scores of restricted enterprises and examine firm’s speculative behavior in response to the policy. Design/methodology/approach This paper views the GCG policy proposed in 2012 as a quasinatural experiment and uses difference-in-differences (DID) model to evaluate its influence on the ESG scores of Chinese nonfinancial A-share listed enterprises from 2007 to 2019. Robustness tests include the propensity score matching (PSM)–DID method and permutation tests. Findings The GCG policy significantly increases the ESG scores of restricted enterprises, particularly enhancing environmental (E) performance. However, it only improves the social (S) and governance (G) performance of firms heavily reliant on bank credit, indicating speculative behavior by enterprises. Increased Government attention, a higher proportion of female executives and more developed local green finance reduce speculative behavior, while executives with financial backgrounds promote it. Practical implications Governments should mandate standardized ESG reporting and monitor restricted enterprises, banks should monitor speculative behavior and firms should integrate ESG into their long-term strategies to support sustainable development. Social implications The results provide evidence of the effectiveness of implementing the GCG policy in China and offer guidance for better promoting green credit policy in developing countries, contributing to the transition toward a more sustainable future. Originality/value To the best of the authors’ knowledge, this paper is the first to explore if the GCG policy’s asymmetric effects on ESG components are due to enterprise speculative behavior and examines the factors influencing this behavior, providing insights for regulators to better implement the GCG policy to promote sustainable development.

The Use of IPO Fund, Underpricing, and Survival: ESG-Driven Insights from Indonesian Firms

The IPO prospectus should disclose information on the use of IPO proceeds, which can be a reference for investors in making investment decisions. Companies conduct IPOs for investment, working capital, and debt repayment purposes. The use of IPO fund for investment and working capital gives a positive signal, while debt repayment gives a negative signal. Some companies also implement ESG (Environmental, Social, and Governance) policies after conducting an IPO. This research aims to test whether companies with ESG scores have different underpricing and survival phenomena compared to companies in general. This research was conducted on 148 Indonesian companies that conducted IPOs in the period 2008-2021. The results suggest that the use of IPO proceeds for investment and working capital has a positive effect on underpricing and survival. However, the use of IPO proceeds for debt repayment has no effect on underpricing. Moreover, the use of IPO proceeds for debt repayment in companies that obtain ESG scores has a positive effect on underpricing. Underpricing strengthens the effect of the use of IPO fund for investment on survival occurs in the sample of companies in general as well as companies that obtain ESG scores. The implication of this research suggests that investors do not consider IPOs as a return on debt in companies that obtain ESG scores as a negative signal to invest.

Is national economic growth associated with environmental social and governance performance of firms?

AbstractThis study delves into the effect of environmental, social and governance (ESG) indicators on economic growth trajectory of an emerging economy. A sample of firms listed on the ESG index of the National Stock Exchange (NSE) was examined. The findings reveal a positive and statistically significant relationship between ESG performance indicators and economic growth represented as gross domestic product (GDP) per capita. The sample is further segregated into energy and non‐energy sectors, where the aggregate ESG scores exhibited a statistically significant influence on economic growth in both sectors. However, upon a closer examination of the individual ESG pillars, the governance pillar is observed to exert a negative influence on economic performance in non‐energy firms. In contrast, the environment and social pillars show no significant influence. The analysis then employs a unique approach by applying a Difference‐in‐differences estimator to assess the impact of Business Responsibility and Sustainability Reporting (BRSR) regulations, which confirms a positive impact on economic growth after regulations but exclusively within the non‐energy sector. This study underscores the substantial impact of ESG aggregate and individual scores on GDP per capita, which translates to economic growth.

ESG performance and cost of debt

We analyze China Securities Index Co., Ltd. (CSI) environmental, social and governance (ESG) scoring data, which incorporate Chinese characteristics, to assess the impact of ESG performance on corporate debt financing costs. Our findings indicate that better CSI ESG scores are correlated with lower debt financing costs. Additionally, improvements in local environmental execution enhance the effect of CSI ESG scores on debt financing costs. However, this effect diminishes with increased internal control quality and marketization. Governance has the greatest impact on reducing debt financing costs, followed by social and environmental factors. Superior CSI ESG scores reduce corporate debt financing costs by enhancing debt repayment capacity and reducing information asymmetry. Economic consequence analysis confirms that lower financing costs, driven by improved ESG performance, significantly enhance total factor productivity and firm value. CSI ESG scores also significantly impact bank loans but not corporate bond financing.

The effect of ESG scores on bank stability: Islamic vs. conventional banks

ABSTRACT This paper examines the impact of ESG (Environmental, Social, and Governance) factors on the stability of banks across different continents, focusing on both conventional and Islamic banking institutions. The empirical analysis indicates a positive influence of ESG activities on the stability of these financial institutions. Notably, the study finds that ESG scores significantly enhance the stability of both conventional and Islamic banks. The environmental pillar score, especially within the conventional banking sector, shows highly positive and statistically significant results, highlighting the benefits of environmentally responsible practices. In contrast, the social pillar is positively correlated with stability in the Islamic banking sector, suggesting that active involvement in community service and social responsibility initiatives leads to improved stability. Overall, the study emphasizes the transformative potential of ESG activities in enhancing the stability and valuation of banks by positively influencing both their external perception and internal operations.

Environmental Social And Governance (ESG) And Corporate Governance in ASEAN A Threshold Effects of Corporate Strategy 1

Sustainable development goals (SDGs) constitute 17 sets of goals to be achieved by the end of the said year. The SDGs prioritize problems associated with hunger, inequality, climate change, environmental destruction, peace, and justice for a better global future (United Nations, 2018). This study has two objectives, first, to examine the relationship between corporate governance mechanisms and corporate sustainability performance across ASEAN-listed companies. Second, to explore the threshold effect of corporate strategy in a nexus relationship between corporate governance mechanisms and corporate sustainability performance. This study uses 118 companies in ASEAN-5 countries as study’s sample. The period covers from 2011-2020. Both fixed effect model and fixed effect threshold regression are employed to capture linear and nonlinear estimation, respectively. The study validates the female directors and the independent directors on ASEAN boards positively impacts corporate sustainability. Intriguingly, the intervention of corporate strategy will mitigate the low company’s ESG score while strengthening the link between corporate governance and ESG score. This study has practical implications for companies, investors, and regulators looking to in incorporate ESG factors into capital expenditure decisions and reporting.

Sustainability and firm value: A multivariate regression analysis in the clothing industry

Firms, recognizing their Corporate Social Responsibility (CSR), are becoming catalysts for societal change by integrating Environmental, Social and Governance (ESG) criteria into their activities. The fashion industry exemplifies this effort, with an increasing number of companies embracing sustainability and ethical practices. In this context, our purpose is to provide a clear and comprehensive picture of the link between sustainability and business performance in the fashion industry. This work presents a Multivariate Regression Analysis, scrutinizing both external perspectives through stock prices and internal perspectives via profitability indices. Our aim is to discern the intricate relationship between sustainability practices and financial performance within the fashion industry, aligning ESG criteria with long-term economic success. Our regression analysis reveals a significant positive correlation between ESG scores and stock prices, indicating investor recognition of ESG performance as a crucial investment criterion. However, when focusing internally on profitability, the ESG score does not exhibit statistical significance, suggesting a yet-to-be-established connection between ESG policies and corporate profitability. This study underscores the evolving role of companies as sustainability promoters, emphasizing the crucial role of ESG performance in shaping investor perceptions. Nevertheless, it also highlights the need for further exploration into the intricate relationship between sustainable policies and corporate profitability. As businesses increasingly embrace sustainability, in fact, it could become paramount for informed decision-making and fostering ethical societal and environmental progress.

Impact of environmental, social and governance (ESG) on foreign institutional investments in India: a machine learning perspective

PurposeThis study thoroughly examines the relationship between environmental, social and governance (ESG) scores and their subcategories with the investment decisions made by foreign institutional investors (FII). These subcategories include resource use, emission reduction and innovation under the environmental pillar, workforce, human rights, community and product responsibility under the social pillar and management, shareholders and CSR strategy under the governance pillar.Design/methodology/approachA machine learning technique known as “topic modeling” is used to analyse the current literature on ESG. To investigate the correlation between ESG scores and their subcategories with the investment decisions made by FII and to address concerns regarding multicollinearity and overfitting, a penalty-based regression model is employed.FindingsThe findings indicate that FIIs invest in firms with higher emission reduction and innovation scores under the environmental indicator. Additionally, firms with high human rights, community and product responsibility scores under the social indicator category have a positive relationship with FII investors. All subcategories of governance indicators, such as corporate social responsibility (CSR), strategy, shareholders and management scores, also positively impact FII investment. Of the three indicators, i.e. ESG, non-promoter FIIs give maximum weightage to governance indicators.Research limitations/implicationsSince ESG is a contemporary topic, the findings on the relationship between different categories of ESG on FII investment will support managers in their FII investment. Also, the study will help the government frame policy decisions on ESG.Originality/valuePrevious studies have explored the impact of the overall ESG indicators on FII investments, but they have not specifically studied the influence of sub-indicators within these categories on investment decisions. By addressing this gap, the study enhances stakeholder theory by identifying and prioritizing the various subcategories of ESG indicators that impact FII investment decisions.

Relationship of ESG scores on firm performance: Moderating roles of board size and CEO duality

The aim of this study is to examine the relationship between Environmental, Social and Governance (ESG) activities and the performance of Thai listed firms. The moderating roles of board size and CEO duality on this relationship are also assessed. The ESG score provided by LSEG (formerly Refinitiv) is chosen to measure ESG activities, both as an overall ESG combined scores and as Environment, Social, and Governance pillar scores. Multiple regression analysis is used to test the impact of ESG on firm performance while the PROCESS macro is used to test the moderating effects. Results reveal that the overall ESG combined score demonstrates no statistically significant effect on firm market-based performance. However, it shows the significant effects on firm performance for both the ESG combined score and the Environmental and Social pillar scores when moderated by board size and CEO duality; Governance pillar score exhibits no significant effect. Additionally, it is found that when the CEO operates only as the managing director and small board size and average board size are evident, higher ESG disclosure scores enhance firm performance. However, when the CEO serves as both managing director and chairman of the board of directors, and where there is a large board size, higher ESG disclosure scores diminish firm performance. This study contributes to the ESG literature and encourages companies to enhance their performance by implementing ESG combined activities with good governance policies.

Can green finance improve the ESG performance? Evidence from green credit policy in China

Green finance, as a crucial policy instrument for achieving environmental and social objectives, has gradually become a focal point of reform in many countries. This study employs the comprehensive ESG (Environmental, Social, and Governance) score of enterprises as a proxy variable for environmental and social responsibility, utilizes difference-in-difference (DID) method and micro-level data from Chinese listed companies spanning the period from 2011 to 2021, reveals that green credit policy significantly enhances the environmental and social performance of relevant enterprises. Further research indicates that green credit policy, through optimizing the allocation of credit resources, fostering environmental awareness among management, and increasing investment in research and development, contribute to the improvement of enterprise ESG performance. Additionally, the degree of regional marketization and the level of financial constraints on enterprises act as moderating factors in the policy's effectiveness, with the enhancing effect of the policy being more pronounced for enterprises with initially top and bottom ESG performance.

Do responsible practices lead to higher firm productivity? Evidence from Europe

AbstractThis study examines the impact of corporate social responsibility (CSR) in its environmental, social and governance (ESG) dimensions on firm productivity. We analyze a data set comprising 448 non‐financial firms operating in 15 European countries during the period 2002–2018 and find compelling evidence indicating that both the overall ESG scores and their individual sub‐pillars, are positively associated with total factor productivity (TFP). To ensure the robustness of our findings, we employ multiple analytical approaches to address potential endogeneity and selection biases. Our evidence demonstrates that the link between ESG and TFP link becomes more pronounced during economic slowdowns, particularly in the aftermath of the financial crisis. Furthermore, our investigation reveals that firms' environmental performance plays a pivotal role in driving this relationship. To validate this outcome, we employ a quasi‐natural experiment, focused on the adoption of the international climate change treaty, the 2015 ‘Paris Agreement’. Overall, our results offer valuable insights for policymakers and regulators and confirm that involvement in sustainability practices within the non‐financial sector not only yields societal benefits but also bolsters firm‐level productivity.

Role of Audit Committees and Internal Audit in the Context of the Evolution of ESG Indicators

Abstract The purpose of this research is to analyze the role and correlation between audit committees and internal audit within companies, in the context of environmental, social and governance (ESG) evolution of indicators in the information industry. Design/methodology/approach - This paper aims to understand whether there is a correlation between these 3 indicators (audit committee, internal audit and ESG indicators) and what is the impact on ESG score. The reported data is collected from a sample of companies included in the Refinitiv Eikon database and analyzed using a panel data analysis at both regional and industry levels. The sample is composed of the number 889 companies, from Europe, most of them members of the European Union and covers a period of 4 years, from 2019 to 2022. The results of this study show that AC and internal audit have a significant positive impact on sustainability disclosure, highlighting the positive impact of reporting according to GRI guidelines, the efficiency of internal audit and the independence of the audit committee. This research contributes to the literature on sustainability reporting by information industry companies, in which regulators do not play a dominant role in determining the degree of disclosure. In the future, it will be necessary to have more involvement in determining these companies to have a greater responsibility regarding the transparency of reporting.

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.

The impact of ESG profile on Firm's valuation in emerging markets

Environmental, Social and Governance (ESG) factors are a critical input in emerging markets for managing risks, attracting capital, being competitive, and complying with evolving regulations. The firms prioritizing ESG are likely to drive innovation and enhance long-term value creation, making them more resilient in these dynamic markets. Therefore, a plausible link should exist between ESG and firm valuation. In this paper, we attempt to validate this link by evaluating the impact of ESG scores and ESG controversies on Tobin's Q and enterprise value to sales (EV/S). Our assessment is based on a comprehensive sample of non-financial firms across sixteen emerging markets for eleven years. Based on fixed effects panel estimations we demonstrate, in general, a positive relationship between firm value and ESG profiles. The fundamental valuation (Tobin's Q) is influenced by the lagged ESG score, while for the multiplier (EV/S), we find the current ESG score to be relevant. For the RepRisk index, we observe that ESG controversies negatively impact firm value for both fundamental and multiplier proxies. Our findings hold considerable implications for the evolving landscape of ESG compliance, particularly for firms and investors in emerging markets, as well as for the broader financial system.

Does environmental, social and governance performance affect acquisition premium?

PurposeFrom a target perspective, this paper aims to examine the impact of environmental, social and governance (ESG) performance on mergers and acquisitions (M&A) transaction valuations.Design/methodology/approachThis paper uses a sample of 629 international transactions conducted between 2002 and 2020. Ordinary least squares (OLS) regression was applied by using ESG aggregate score and the three ESG pillars: environment, social and governance.FindingsThis paper finds that the ESG performance of targets has a negative and significant impact on acquisition premiums. However, this paper finds that targets receive lower premiums by increasing their ESG score, suggesting that targets would do better to focus on ESG to increase shareholder wealth. Thus, results of this paper support the view that ESG-focused firms create shareholder value through the M&A process. Furthermore, results of this paper indicate that environmental and social aspects of ESG drive the acquisition premium. The governance score does not seem to be related to acquisition premiums.Originality/valueTo the best of the authors’ knowledge, this study is the first study to assess whether ESG performance impacts the valuation of M&A transactions by decomposing ESG into its three components.

The implications of COVID-19 on ESG performance and financial reporting quality in Egypt

Purpose This examine the impact of environmental, social and governance (ESG) performance on financial reporting quality (FRQ) before and during COVID-19 in the Egyptian market. Design/methodology/approach This study uses quarterly data from 2017 to 2021 to draw conclusions, with a sample consisting of 486 firm-year observations for 27 Egyptian companies listed on the Standard and Poor’s/Egyptian Stock Exchange ESG index. This study uses both firms’ ESG scores and the Beneish Model, an earnings detection model, as proxies for FRQ. COVID-19 effects on ESG performance and FRQ were examined by using Pearson’s correlation coefficient and two-stage least squares. Findings COVID-19 has a significant impact on the link between ESG and FRQ. This implies that corporations with high ESG performance are less likely to manipulate earnings (having a low M-score) and thus provide high FRQ during the COVID-19 pandemic. Moreover, there is a significant positive relationship between firm size, leverage and M-Score, indicating that large firms typically present a high FRQ. Research limitations/implications The sample size and data availability are the main research limitations. Additionally, this study only considers the effects of firms’ ESG performance on FRQ during the COVID-19 pandemic. Thus, future research should consider other factors associated with investors’ corporate social responsibility (CSR). Practical implications This research has practical implications for market regulators seeking to establish a legislative framework and enhance guidance to mandate managers to provide ESG data and CSR reports appropriate for Egypt and other developing economies in times of crisis. Social implications Promoting the adoption of ESG practices in business, particularly during crises, has the potential to effectively provide high-quality and reliable financial reporting required for investment. Originality/value This study aspires to address notable deficiencies in the pertinent literature concerning the relationship between ESG performance and FRQ during COVID-19. To the best of the authors’ knowledge, little is known about how ESG performance changes in response to pandemics in emerging markets. To address this gap, this study examines the effects of COVID-19 on the relationship between ESG performance and FRQ in Egyptian-listed firms from 2017 to 2021.

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.

Impact of ESG Score on Stock Performance in Banking and IT Sector

The awareness regarding Environmental, Social and Governance (ESG) has grown a lot in the recent past years. The paper mainly aims at investigating whether there is an existing relationship between the disclosure by the companies from the industry of Banking and Information Technology based upon Environmental, social and governance framework and the stock performance of the companies of the same industry. The study took variable as the ESG Score and annual share price of the top 5 companies each of Banking and Information Technology present in the NSE ESG INDEX between the FY2014 to FY 2023. The study has used correlation and ANNOVA to analyse the impact that ESG score has upon the share prices of the target companies. We have attained observation through our studies that the relationship that exists between the SDG score of 8 companies out of the 10 companies selected as a sample is significantly positive. This study mainly aims to determines the relationship amongst ESG disclosures and stock prices and if the relationship is positive, negative or neutral. Keyword - ESG disclosure, ESG index, ESG Score, Stock Price, Firm performances