Environmental, Social And Governance Scores Research Articles

Sustainable development: The role of sustainability committees in achieving ESG targets

AbstractThis study investigating the impact of sustainability committee characteristics (SCCs) on corporate sustainability performance (CSP) utilised environmental, social and governance (ESG) scoring. Based on secondary data obtained from Refinitiv, Fame and FTSE 150 databases, the sample consists of 112 non‐financial companies from 2010 to 2018, thus 926 firm‐year observations. The results reveal a positive and significant relationship between organisational factors including firm size, profitability and firm age across combined ESG and environmental scores. As for the sustainability committee characteristics, there is a positive association between frequency of committee meeting and age diversity with governance scores and a negative relationship between frequency of committee meeting and environmental performance. The empirical finding shows positive and negative relationships under the presence of focussed and non‐focussed committees equally. Furthermore, the presence of focussed or non‐focussed sustainability committees (SCs) do appear to have an association with the overall CSP. Furthermore, this paper provides empirical evidence of the insignificant relationship of SCC with the sub‐dimension of social performance, which contradicts our hypothesis and existing studies. Together with SCC's weak associations with environment and governance dimensions, this finding supports the argument that firms are actively using sustainability committees to create positive public image and reputation to protect legitimacy.

Can ESG Ratings impact Accounting Performance: Evidence from Chinese Companies

ESG (Environmental, Social, and Governance) considerations play a pivotal role as they epitomize a company's commitment to responsible practices and ethical conduct. The significance of ESG scores extends to their impact on accounting performance, serving as barometers of a company's adeptness in risk management, operational efficiency, and the cultivation of stakeholder trust. This research undertakes a comprehensive exploration into the influence of heightened ESG scores on the enhancement of accounting performance. The primary focus of this study revolves around the inquiry into whether elevated ESG scores yield tangible improvements in financial outcomes. By meticulously scrutinizing the dataset of A-share companies in China, the research aims to elucidate the correlation between elevated ESG scores and favorable financial results. The outcomes of this investigation firmly establish a positive nexus between elevated ESG scores and the attainment of superior accounting performance. It is evident that ESG practices wield a transformative influence on a company's operational landscape. By fostering enhanced efficiency, mitigating risks, and bolstering stakeholder confidence, these practices synergistically augment a company's overall operational framework. Moreover, this paper underscores the existing research gap in understanding the intricate relationship between ESG scores and accounting performance, underscoring the urgency for further exploration in this domain. The implications of these findings are profound, particularly for enterprises striving to optimize their financial success while upholding conscientious and ethical standards. As businesses navigate an increasingly complex global landscape, the integration of robust ESG practices emerges not only as a moral imperative but also as a strategic pathway to enduring financial prosperity.

The moderating role of tax avoidance on CSR and stock price volatility for oil and gas firms

PurposeThis study examines the impact of CSR (corporate social responsibility) on stock price volatility of oil and gas firms and, then identifies the moderating role of tax avoidance.Design/methodology/approachTo achieve the study's purposes, 330 observations are extracted from 30 oil and gas firms for the period between 2010 and 2020, and the estimation method of the Generalized Least Squares (GLS) is used. Actually, the CSR is proxied using the ESG (environmental, social, and governance) score, and the stock price volatility is measured by the degree of stock price variations over 12 months, according to the last 52 week's price.FindingsThe main findings indicate that CSR negatively impacts the stock price volatility. Nonetheless, this negative relationship is moderated positively by tax avoidance. This result is robust to the variation in the measure of volatility, namely the systematic risk.Practical implicationsThis research is helpful for investors to manage their portfolio risk as this article highlights the importance of engaging in sustainable development to reduce financial risk. This study also helps regulators and policymakers, such as environmental agencies and tax authorities, to reassess their control with oil and gas firms and record them according to their CSR practices, because this article emphasizes that it is not fair to pay taxes and engage in CSR practices at the same time.Originality/valueThe impact of CSR on stock price volatility is widely treated for firms. Nevertheless, the mechanisms that may affect this relationship are still seldom discussed. This study attempts to examine the impact of tax avoidance on the CSR–stock price volatility relationship for the oil and gas industry.

Environmental Social and Governance (ESG) Performance of Corporate Value in Different Periods

The prevalence of COVID-19 offers companies the opportunity to adopt a more realistic approach to corporate social responsibility. This study examines the performance of ESG and corporate value under the COVID-19 scenario using panel data from 2018 to 2021. After collecting data from the Wind database, regression analysis was used to analyses the total ESG score, specific indicator scores and companies with various ratings. This study showed that sustainability - whether environmental (E), social (S) or governance (G) - contributes to enterprise value. It contributed to an increase in enterprise value for companies with high ratings, but had little impact on the enterprise value of companies with low ratings. In addition, the study was divided into two groups based on the duration of the pandemic to determine whether sustainability and firm value behaved differently under the influence of COVID-19. Even in the presence of COVID-19, the study found that the impact of sustainability on firm value was still favorable and significant. This study provides a detailed breakdown of ESG scores and regression analysis of individual indicators. Secondly a more detailed classification of companies was also carried out, with the study looking at companies according to different ratings, including AAA, AA, A, BBB, BB, B, CCC, CC, C.

Does sustainability reporting affect firm performance? Evidence from the port sector

Given that stakeholders are paying more and more attention to the environmental, social, and governance (ESG) policies of firms, the objective of this paper is to study the effect of ESG disclosure on firm performance, focusing on companies involved in port activities; precisely, (i) a port company/authority, (ii) a terminal operator/stevedore, and (iii) an integrated carrier. The study contributes to the existing knowledge by incorporating ESG scores and looking at factors that indicate financial strength. The contribution of our study will lie in complementing and adding to the existing knowledge, along with further incentivizing sustainable firm performance. This study discovers that a positive relationship between ESG disclosure, firm value, and firm performance exists, as determined by market-to-book ratio and Q ratio, respectively. It considers a panel regression examination, by means of a sample of 213 publicly listed ports and considering a time period of 5 years. This study will benefit scholars, decision-makers, legislators, and stakeholders of ports through improving their comprehension of how ESG disclosure affects the performance of firms, in general and specifically for each pillar. Highlights The aim of the present study is to examine the impact of ESG (environmental, social, and governance) disclosure on the performance of firms that are engaged in port-related operations. More specifically, our focus is on three types of companies, namely, a port company/authority, a terminal operator/stevedore, and an integrated carrier The present study has found that a favorable correlation exists between ESG disclosure, firm value, and firm performance, as gauged by the market-to-book ratio and Q ratio, correspondingly The study conducts a panel regression analysis, utilizing a sample of 213 publicly listed ports over a time period of five years This study will be advantageous to scholars, decision-makers, legislators and stakeholders in the port industry, as it enhances their understanding of how ESG disclosure impacts firm performance, both globally and within each distinct pillar

K-MEANS AND AGGLOMERATIVE HIERARCHICAL CLUSTERING ANALYSIS OF ESG SCORES, YEARLY VARIATIONS, AND STOCK RETURNS: INSIGHTS FROM THE ENERGY SECTOR IN EUROPE AND THE UNITED STATES

This study employs k-means clustering and agglomerative hierarchical clustering techniques to visually examine the potential relationship between Environmental Social and Governance (ESG) scores, their year-over-year variations, and annual stock returns for a sample of 34 energy sector companies operating in Europe and the United States. While the agglomerative hierarchical clustering dendrogram suggests two clusters, the elbow method of the k-means algorithm suggests 2-4 clusters. The results indicate that neither ESG scores nor their year-on-year variations had an impact on the annual returns of the stocks. The conclusion is further confirmed by the Pearson correlation coefficient. However, the ESG scores of European energy companies show a tighter dispersion and smaller year-over-year change, making them more predictable ESG score-wise and thus, potentially, more attractive to ESG-driven investors.

The impact of environmental, social and governance (ESG) disclosure on firm financial performance: evidence from Hong Kong

PurposeThis study investigates the impact of environmental, social and governance (ESG) disclosure on firm financial performance under a mandatory disclosure regime in Hong Kong.Design/methodology/approachThe authors examine the largest 109 firms listed on the Hong Kong Exchange (HKEX) as of the financial year of 2019. The authors use a manually constructed index based on the most current 2019 ESG Reporting Guide launched by HKEX, followed by quantitative statistical methods using a model that follows the valuation framework by Ohlson.FindingsThe authors find a significant positive association between total ESG disclosure level and firm financial performance in the main tests. However, when the total ESG scores are partitioned into environmental and social subscores, the results show that only social disclosures are value relevant. Moreover, the results demonstrate that environmental and social subscores are both significant when return on assets (ROA) is used as a dependent variable. Furthermore, the robustness tests show that only qualitative ESG information is value relevant to share prices, while both quantitative and qualitative ESG information are relevant to ROA. In addition, the disclosure quality of annual reports alone is good in explaining the firm financial performance in this study.Originality/valueThis study contributes to existing non-financial reporting literature using hand-collected data as well as examining the firm financial performance of ESG reporting under the mandatory disclosure regime in the Hong Kong context.

Empirical Study of ESG Score Prediction through Machine Learning—A Case of Non-Financial Companies in Taiwan

In recent years, ESG (Environmental, Social, and Governance) has become a critical indicator for evaluating sustainable companies. However, the actual logic used for ESG score calculation remains exclusive to rating agencies. Therefore, with the advancement of AI, using machine learning to establish a reliable ESG score prediction model is a topic worth exploring. This study aims to build ESG score prediction models for the non-financial industry in Taiwan using random forest (RF), Extreme Learning Machines (ELM), support vector machine (SVM), and eXtreme Gradient Boosting (XGBoost) and investigates whether the COVID-19 pandemic has affected the accuracy of these models. The dependent variable is the Taiwan ESG Sustainable Development Index, while the independent variables are 27 financial metrics and corporate governance indicators with three parts: pre-pandemic, pandemic, and the entire period (2018–2021). RMSE, MAE, MAPE, and r2 are conducted to evaluate these models. The results demonstrate the four supervised models perform well during all three periods. ELM, XGBoost, and SVM exhibit excellent performance, while RF demonstrates good accuracy but relatively lower than the others. XGBoost’s r2 shows inconsistency with RMSE, MAPE, and MAE. This study concludes the predictive performance of RF and XGBoost is inferior to that of other models.

The Influence Of Executive Compensation On ESG Ratings: A Study Of Publicly Listed Companies In Taiwan

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.

Is Environmental, Social and Governance (ESG) Disclosure Value Enhancing? Evidence from Top 100 Companies

Embracing environmental, social, and governance (ESG) megatrend among Malaysian firms is becoming crucial as ESG compliance and disclosure are still in the infancy stage, especially after the coronavirus disease (COVID-19) outbreak. Aligned with the government’s initiatives, this study examined the effects of ESG disclosure on firm performance. Using 180 firm-year observations from the top 100 firms listed on Bursa Malaysia from 2018 to 2021, we found that the ESG score boosted firm performance, as its disclosure attracted investor confidence and indirectly increased investment and firm performance. However, it was discovered that controversies provide a positive signal to investors in emerging countries as it improved their firm performance; further analysis was conducted to investigate which ESG pillars had a positive effect on the firm performance. The social pillar was associated with higher firm performance as it can influence workplace culture and indirectly increase firm performance. Contrasting findings were also found on the governance pillar on firm performance which indicated that governance did not improve firm performance directly, but good governance may contribute to better ESG investment and disclosure. Indirectly, it can improve firm performance. This study adds important evidence on the effects of ESG pillars and ESG controversies on firm performance. Keywords: Environmental Social Governance (ESG), firm performance, sustainability

ESG scores and firm performance- evidence from emerging market

This paper investigates the effect of ESG (environmental, social, and governance) disclosure scores on the firm's performance (operational, financial, and market) using Indian firms. The study assesses the critical COVID period and provides empirical evidence from the world's 5th largest economy. The findings from empirical results declare that all components of ESG are not significantly related to firm performance. We conclude that the impact of ESG-related activities is yet to be witnessed tangibly for firm performance. The study also opens an array of future research opportunities.

Esg Score And Stock Price Synchronization In Indian Market

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.

Relationship between ESG and corporate financial performance in the energy sector: empirical evidence from European companies

PurposeConsidering environmental, social and governance (ESG) factors is vital in climate change mitigation. Energy companies must incorporate ESG into their business plans, although it unquestionably affects their corporate financial performance (CFP). This paper aims to investigate the effect of ESG on energy companies’ profitability through return on assets by analysing the combined score and individual dimensions of ESG.Design/methodology/approachThe study examined a panel data sample of 911 firm-year observations for 85 European energy-sector companies during 1995–2020. Two distinct modelling specifications were applied to explore the impact of ESG components on the CFP of EU energy companies. The financial data and ESG scores were obtained from the Thomson Reuters Eikon database in July 2021.FindingsThe empirical findings revealed that energy companies’ profitability is marginally and negatively affected by their ESG performance. Whereas independent evaluation of the ESG subcomponents indicated that environmental responsibility has a significant negative effect. In contrast, corporate social and governance responsibilities are positively but not significantly associated with the company’s CFP.Originality/valueThis study fills a research gap in the ESG–CFP literature in the European energy sector, a pioneer in sustainable development. To the best of the authors’ knowledge, this study’s originality lies in its analysis of ESG factors’ role in profitability by considering different EU countries and energy sectors.

The Impact of Equity Analysts on ESG Performance: Evidence from an Exogenous Shock

This article investigates whether equity analysts promote or discourage environmental, social and governance (ESG) engagement by using an international sample of firms incorporated in 46 countries. To establish causality, we rely on two natural experiments, that is, brokerage mergers and closures, which generate an exogenous coverage termination. We find that the loss of an equity analyst results, on average, in an increase in the ESG score. This finding is consistent with the view that equity analysts exacerbate managerial myopia, encouraging listed firms’ managers to excessively focus on short-term outcomes. We also find that the impact of analyst loss on the ESG performance holds only for companies whose managers pay more attention to not miss earnings targets and for firms located in countries where the cultural orientation to long-term growth (rather than short-term results) is stronger. Finally, by decomposing the ESG score into its various sub-pillars, we observe that the impact of analyst loss is driven by the Environmental and Social dimensions, while no significant impact is found for the Governance dimension.

Demystifying the relationship between ESG and SDG performance: Study of emerging economies

Companies and investors in emerging markets have started paying attention to ESG (Environmental, Social, and Governance) issues. There has been a growing demand for aligning ESG disclosure of companies to UN SDGs (United Nations Sustainable Development Goals), so understanding how the firm-level ESG affects the country-level SDG is very important for evaluating the advances in ESG and SDG implementation in emerging markets. This study examines the linkage between firm-level ESG disclosures and their relationship with country-level SDG scores over ten years for three emerging countries: India, China, and Brazil. The analysis of 1,500 top-listed firms in these countries reveals an increasing trend of firms going for ESG disclosures and increased ESG scores over the years in the three markets. Out of the total sample, almost 75% of firms make ESG disclosures in Brazil, followed by 54% in India and 32% in China. Additionally, companies in all these countries tend to emphasize governance-related disclosures more, with Brazil having higher ESG disclosures than India and China. The correlation and causality tests indicate a significant positive correlation between mean ESG scores and country-specific SDG scores. The Dumitrescu-Hurlin panel causality tests provide stronger linkages between firm-specific Environment scores and SDG scores, indicating that a firm’s environment disclosures translate into higher SDG scores. However, the same is not valid for Social and Governance factors. These findings have important implications given the global attention on the linkages between ESG disclosure and SDG score. AcknowledgmentsThe financial and infrastructure support provided by FORE School of Management, New Delhi in completing this paper is gratefully acknowledged.

Impact of ESG on Bank Performance and Risk Around the COVID-19 Pandemic

Financial institutions’ focus on using ESG (environmental, social, and governance) criteria in decisions has grown significantly over time despite growing controversy over its use. Prior papers have not solved the controversy as they have found mixed results of the benefits of ESG activity. Further, there may have been structural changes that accompanied the pandemic’s period of economic stress. The paper examines the relation between ESG scores and financial institutions’ risk and performance measures. Pre-pandemic changes to ESG and its components are regressed on pandemic-period changes in ROA, ROE, and Tobin’s Q for performance and the loan-to-deposit ratio for risk. Changes to ESG are negatively related to the subsequent performance of ROA. However there appears to be no significant relation between changes in ESG and changes to other measures of performance. Finally, when looking at the loan-to-deposit ratio, there is evidence that changes in the environmental factor, the social factor, and the overall ESG score has a significant and negative relation. That suggests ESG score improvement is associated with lower risk. Although financial institutions improving their ESG scores is associated with subsequent risk reduction, that does not appear to have a positive performance impact.

Ensuring the Efficiency of Regulation and Development of Esg Rating Methodology for Russian Companies

Objective: This article discusses the assessment model used to evaluate the ESG (Environmental, Social, and Governance) performance of companies. The purpose of this article is to present a new ESG (Environmental, Social, and Governance) rating methodology developed in accordance with the recommendations of the Bank of Russia and explain its benefits for sustainable investment in the context of the Russian market.
 
 Methods: The data structure, preprocessing, and scoring methodology have been elaborated. The scoring algorithm considers the intrinsic value of each criterion and evaluates the relative performance of a company within an industry. The methodology discussed here can provide a basis for investors to select companies based on ESG performance.
 
 Results: The authors accomplished several tasks in this study, including introducing the concept of ESG and discussing its importance, describing sources of data and criteria used to evaluate sustainable development, and developing a methodology for assessing ESG scores. They also discussed the benefits of this methodology for the Russian market and created a consolidated rating of companies based on ESG factors.
 
 Conclusion: The authors have developed a comprehensive and objective assessment model for evaluating the Environmental, Social and Governance (ESG) factors of companies in Russia. The model's approach to data collection, preprocessing, and scoring provides investors with reliable and informative data for making responsible investment decisions.

An Improved TOPSIS Model Based on Cumulative Prospect Theory: Application to ESG Performance Evaluation of State-Owned Mining Enterprises

The aim of this study is to provide a comprehensive decision-making method that can be applied to investment decisions based on the Environmental, Social and Governance (ESG) performance. The study contributes to the existing literature by introducing the CPT-TOPSIS model, a pioneering approach that incorporates the effect of non-rational factors on decision-making results in uncertain conditions by combining cumulative prospect theory (CPT) with the classic TOPSIS model. Moreover, by conducting an application to ESG evaluation on five state-owned mining enterprises in China, the study provides evidence of the effectiveness and improvement offered by the new model in comparison with the classic TOPSISI model and prospect theory TOPSIS (PT-TOPSIS) model. The results suggest that the CPT-TOPSIS model considers risk preferences and probability distortion in the decision-making process, narrows the gap between ESG scores, and makes ESG performance evaluation more realistic.

How to combine ESG scores? A proposal based on credit rating prediction

AbstractThe diffusion of Environmental, Social and Governance (ESG) metrics is increasingly affecting corporates behaviour and their ability to attract investors. Corporate ESG practices are nowadays considered as a key element in evaluating creditworthiness and the cost of capital, to direct funds to the best‐performing companies that limit the harmful impact on the planet and the societies. Due to this increased interest in ESG by companies, investors and policymakers, a high number of ESG scores and metrics have been developed, each with different methodologies and scopes. Because of this variety, it could be therefore challenging for investors to understand and compare ESG measures. In this paper, we address this issue by proposing a method to combine the information provided by different ESG scores into a single aggregate measure of company sustainability and link this combined score to the credit rating of companies. The proposed methodology can help investors to improve their investment decisions by combining more diverse information on company sustainability as a driver of companies' credit rating, thereby reducing information asymmetries.

Developing the Esg Rating Methodology for Russian Companies

Objective: This article discusses the assessment model used to evaluate the ESG (Environmental, Social, and Governance) performance of companies. The purpose of this article is to present a new ESG (Environmental, Social, and Governance) rating methodology developed in accordance with the recommendations of the Bank of Russia and explain its benefits for sustainable investment in the context of the Russian market.
 
 Methods: The data structure, preprocessing, and scoring methodology have been elaborated. The scoring algorithm considers the intrinsic value of each criterion and evaluates the relative performance of a company within an industry. The methodology discussed here can provide a basis for investors to select companies based on ESG performance.
 
 Results: The authors accomplished several tasks in this study, including introducing the concept of ESG and discussing its importance, describing sources of data and criteria used to evaluate sustainable development, and developing a methodology for assessing ESG scores. They also discussed the benefits of this methodology for the Russian market and created a consolidated rating of companies based on ESG factors.
 
 Conclusion: The authors have developed a comprehensive and objective assessment model for evaluating the Environmental, Social and Governance (ESG) factors of companies in Russia. The model's approach to data collection, preprocessing, and scoring provides investors with reliable and informative data for making responsible investment decisions.