Environmental, Social And Governance Scores Research Articles

Women on boards, firms’ competitive advantage and its effect on ESG disclosure in Malaysia

Purpose The purpose of this paper is to investigate the effects of women on board moderated by firms’ competitive advantage on firms’ environmental, social and governance (ESG) disclosures. Design/methodology/approach The sample consists of 332 firm-year observations from the year 2012 to 2017 of 65 firms listed in Bursa Malaysia. To improve the robustness of this analysis, the authors adopt clustering techniques in the regression analysis. Sensitivity analysis is also conducted using two-stage least square regression and robust standard errors for panel regression with a cross-sectional dependence approach. Findings The findings of this research indicate that women on board encourage ESG and environmental disclosures. Nonetheless, in competitively advantaged firms, the authors find that the interaction between WOMENPER and COMADVANTAGE is negatively influencing ESG scores. However, no evidence is found to indicate that women on board in a competitively advantaged firm have an effect on the environmental scores of a firm. Research limitations/implications The findings urge regulators to ensure the appointment of qualified and competent women on board, particularly in competitively advantage firms. Practical implications Though firms with more women on board are associated with better ESG disclosures and environmental disclosures, the author’s additional analysis found that this is less pronounced in competitively advantage firms. Since a number of the competitive firms are owned by family firms as well as government-linked firms, the appointment of women should not be based on directors’ affiliation, network and family relationships. Originality/value To the best of authors’ knowledge, this is one of the few studies which seek to investigate women’s appointment in competitive advantage firms.

Quality and environmental management systems as business tools to enhance ESG performance: a cross-regional empirical study

AbstractThe growing societal and political focus on sustainability at global level is pressurizing companies to enhance their environmental, social and governance (ESG) performance to satisfy respective stakeholder needs and ensure sustained business success. With a data sample of 4292 companies from Europe, East Asia and North America, this work aims to prove through a cross-regional empirical study that quality management systems (QMSs) and environmental management systems (EMSs) represent powerful business tools to achieve this enhanced ESG performance. Descriptive and cluster analyses reveal that firms with QMSs and/or EMSs accomplish statistically significant higher ESG scores than companies without such management systems (MSs). Furthermore, the results indicate that operating both types of MSs simultaneously increases performance in the environmental and social pillar even further, while the governance dimension appears to be affected mainly by the adoption of EMSs alone. To the best of the authors’ knowledge, such large-scale, cross-regional analysis of the impact of QMSs and EMSs on ESG performance is absent from the literature, thus paving the way for pioneering academic research. The study is grounded in stakeholder theory and demonstrates managers how the implementation of MSs can assist in successfully translating stakeholders’ sustainability concerns into actionable business practice. Furthermore, it allows decision-makers to gain insight into the strengths and weaknesses of QMSs and EMSs for tackling specific ESG issues and highlights the performance advantages of combining both MSs. The work also depicts policymakers how corporate sustainable performance (CSP) can be improved by fostering MSs adoption, thereby emphasizing the importance of supporting and facilitating the diffusion of these systems.

Environmental, social and governance-efficient frontiers in an emerging market milieu

Orientation: Environmental, social and governance (ESG) factors have evolved from peripheral significance (2000s) to a leading factor (2022) for many corporates. Most are now assigned ESG grades; which are increasingly scrutinised by investors.Research purpose: An ideal milieu might involve rewards for responsible firms and penalties for culprits, but in a profit-driven world, this is not always true. Investors demand profitability so some trade-off is required.Motivation for the study: Recent work to measure and optimise portfolio performance while observing corporate conscientiousness is promising: return/risk profiles comparable to those attained by unconstrained portfolios appear possible.Research approach/design and method: Portfolio optimisation using Lagrangian calculus. As ESG scores worsen, portfolio performance should be adversely affected, and we then apply – for the first time – these portfolio optimising developments to emerging market corporates.Main findings: ESG grades have improved over time, with both a statistically significant risk reduction and an increase in returns (the reverse for deteriorating ESG grades). As volatility increases, optimal ESG grades increase slowly as associated Sharpe ratios decrease. This could be due to an option-like reliance of inherent value upon underlying volatility.Practical/managerial implications: With better knowledge of trends, asset managers who take ESG metrics into account can confidently assert that ESG compliant portfolios can generate healthy risk adjusted returns (Sharpe ratios) and that these values are improving over time.Contribution/value-add: ESG compliant portfolios have become viable investments while adhering to sensible, responsible investment principles. ESG scores are improving globally, albeit at different rates.

The influence of the country governance environment on corporate environmental, social and governance (ESG) performance

PurposeThe purpose of this study is to investigate whether the corporate environmental, social and governance (ESG) performance of companies is influenced by the barriers and opportunities created by three factors characterising a country’s governance landscape: democracy, political stability and regulatory quality. Additionally, this study separately explains the influence of the three country governance factors on the ESG performance of companies and how they are affected by the profitability of the company.Design/methodology/approachFixed effects multiple linear regression is performed on 6,035 firm-year observations drawn from 27 countries relating to 1,207 unique constituents of the S&P Global 1200 index for a five-year period from 2015 to 2019. Clustered standard errors robust to heteroscedasticity and serial correlation are estimated for a specification that includes Refinitiv ESG scores as the dependent variable, selected Worldwide Governance Indicators as the independent variables and several country- and firm-level controls.FindingsThe study finds that companies’ ESG performance is higher in countries with a lower level of democracy and political stability, and corporate governance performance is higher in countries with higher regulatory quality. A component-level analysis finds significant variation in the results across the different ESG pillars. Firm profitability moderates the relationship between country-level governance factors and companies’ ESG performance.Practical implicationsThe study reveals that national governments can prompt companies to enhance their governance performance, invariably leading to greater engagement in sustainability by improving their regulatory environment and enforcement mechanisms. Thus, the implementation of regulations targeting corporate environmental and social performance is not always needed to prompt better corporate ESG performance.Social implicationsThis study shows that internationalised companies proactively work towards achieving sustainability in countries where the country governance landscape is ineffective and inadequate to enable it.Originality/valueThis study addresses the association between country-level governance and firm-level ESG performance, in contrast to firm-level corporate social responsibility disclosure that has been the focus of prior research. As disclosures can be symbolic and may not reflect actual ESG performance, the results of prior studies examining the relationship between country-level governance performance and corporate social responsibility disclosure is inappropriate to explain the factors affecting the ESG performance of companies.

Environmental, Social and Governance investing: Does rating matter?

AbstractIn the last decade, the demand for sustainable and social investments has improved. The mutual funds industry has responded to market needs by offering a number of investment products focused on Environmental, Social and Governance (ESG) companies. The aim of this article is to understand if an ESG score can actually be considered a valid criterion that portfolio managers could adopt, along with traditional risk–return optimisation, in selecting asset portfolios. The paper analyses the link between the performance and the ESG score of different sectoral portfolios (one for each sector of the Global Industry Classification Standard), entirely composed of ESG assets, in the search for a clear and strong positive correlation that could suggest an overall advantage to focus on an ex ante choice of assets with high ESG scores.

ESG-Based Sustainability Performance and its Impact on Cost of Capital: International Evidence from the Energy Sector

The purpose of this article is to examine the impact of firms’ sustainability performance, measured through their ESG (environmental, social, and governance) scores, on their cost of capital. Using the data of 125 companies from 24 countries for an eleven-year period from 2009 to 2019, we run panel data regressions to find out the impact of ESG scores on two measures of cost of capital: cost of debt, and cost of equity. We run pooled and panel regressions. The results reveal an inverse relationship between cost of capital and overall ESG scores. As a robustness check, we run the analyses according to the generalized method of moments, leading to similar results. For the individual scores of the environmental, social, and governance pillars, the results are mixed. The results imply that companies should adopt a holistic approach and engage in all dimensions of sustainability.

Coping with Greenhouse Gas Emissions: Insights from Digital Business Services

Digital Business Services (DBS), industries that have grown rapidly in recent years, played important roles in facilitating the adoption of digital technologies, as well as having applications in innovative products, transforming business processes across the economy. If DBS firms are committed to reducing negative environmental impacts, they should be able to make more positive contributions to their clients’ performance; for instance, promoting the digitalization of businesses process in ways that can reduce greenhouse gas emissions and inefficient energy usage. But what are DBS business practices, in terms of greenhouse gas emissions and related topics? This study examines the Environmental, Social and Governance (ESG) disclosures of leading companies providing consultancy, advertising/marketing, and information technology services. The plans, targets, and actions of DBS companies with above-average ESG scores, as indexed by the Refinitiv dataset, are examined. The results indicate that all of these firms express goals, and almost all of them have set clear targets, in terms of moving to net zero. A wide range of relevant activities is being implemented, including services that promote energy efficiency. The diversity of these actions suggests that these firms can learn from each other, and that companies with lower ESG ratings have models to emulate.

The Effect of ESG Ratings on the Value of Chinese Listed Companies

Purpose - ESG(Environmental, Social and Governance) rating is an indicator to predict the sustainable development and long-term value creation of enterprises, which is becoming more and more important. This study divided the ESG rating into each sector(E, S and G) to identify which ESG elements are effective in enhancing enterprise value according to the characteristics of the enterprise, which is different from previous studies. Design/methodology/approach - In this study, Bloomberg ESG Disclosure Score was used to empirically analyze the relationship between ESG ratings and corporate value by taking the listed companies of China’s Shanghai Composite Index from 2017 to 2020 as the object. Findings - First, the relationship between ESG ratings and enterprise value shows a statistically significant positive correlation, which supports the results of previous studies. Second, the analysis results from the classification of ownership structure of enterprises (state-owned enterprises and non-state-owned enterprises) show that compared with state-owned enterprises, the ESG ratings of non-state-owned enterprises is more closely related to enterprise value. Third, the analysis of various industries (manufacturing and non-manufacturing) shows that compared with manufacturing, ESG scores of non-manufacturing has a more positive effect on enterprise value. Lastly, the analysis by industry type (heavy-contaminated companies, non-contaminated companies) confirmed that ESG scores of non-contaminated companies has a positive effect on corporate value than heavy-contaminated companies. Research implications or Originality - This study classified ESG evaluation grades(E, S and G) for listed companies in China and analyzed in detail how they affect corporate value according to corporate characteristics, drawing implications for what ESG indicators should be focused on to increase corporate value.

ESG, operational efficiency and operational performance: evidence from Real Estate Investment Trusts

PurposeThe purpose of the paper is to examine the relationship between the Environmental, Social and Governance (ESG) performance of Real Estate Investment Trusts (REITs) and their operational efficiency and performance.Design/methodology/approachThe authors use S&P Global (formerly SNL Real Estate) for the study analyses and examine all publicly traded REITs based in the United States over the 2019–2020 sample period. The authors regress the measures of REIT operational efficiency and operational performance on REIT ESG scores while controlling for REIT characteristics and use an ordinary least squares (OLS) estimation model with heteroscedasticity-robust standard errors. The authors also run additional regressions to examine the implications of operational efficiency on the relationship between ESG and operational performance.FindingsThe authors find that REITs that perform well on the ESG scale have higher operational efficiency. In addition, the authors find that REITs with better ESG scores are associated with better operational performance. Finally, the authors find that the positive association between ESG scores and operational performance is stronger in REITs with higher operational efficiency.Practical implicationsFirst, the adoption of ESG adds value to the REIT in terms of increased operational performance and efficiency. Second, the value addition of ESG to an REIT is driven by the better operational efficiency of some REITs over the others. Therefore, the authors’ findings suggest that REITs that currently score poorly on ESG performance would first need to focus on all the possible avenues to improve economies of scale and hence operational efficiency. This approach would help ensure that when those REITs adopt ESG initiatives, they get the most bang for their buck.Originality/valueTo the best of the authors’ knowledge, this is the first study that relates operational efficiency and operational performance of REITs to their ESG scores.

ESG performance scoring method to support responsible investments in port operations

ESG (environmental, social, and governance) is a concept that emerges as one of the modern methods of evaluating corporate risk for contemporary investors. Half of the assets in the European market are allocated through strategies that consider the ESG concept; approximately 30% in the American market. The topic is still at an early stage for advanced industries, with few articles proposing qualitative assessments of companies' ESG performance. The situation of the port industry is even worse, where no works that introduce the ESG concept in any port authority or terminals were found. Seaports represent 80% of all international trade and are essential to its primary hinterland. To fulfill this gap, this work proposes a method to quantify ESG performances of international ports. With a case study in three global hub ports selected by the similarities between its cargo and tonnage throughput and the importance of the primary hinterland – Santos, Bremen/ Bremerhaven, and Barcelona, it was found that their clusterization into grades based on ESG scores could support responsible investments in port operations, although its adoption faces challenges according to the country host development.

Environmental, social and governance (ESG) performance in the context of multinational business research

PurposeThis paper aims to examine the state of research on environmental, social and governance (ESG) performance in the context of multinational business research. This paper discusses research progress as well as various issues and complexities associated with using ESG ratings in cross-country studies and for assessing the performance of multinational enterprises (MNE) and emerging market multinationals (EMNEs).Design/methodology/approachThe paper identifies emerging literature that focuses on tracking the development and uptake of ESG ratings in the international context. It discusses three emerging research streams: Research examining the ESG-financial performance relationship in emerging markets, research tracking the ESG performance of multinationals in the various countries and regions they are operating, and frameworks for assessing ESG-related risks on a country level.FindingsWhile the emerging body of work adds an important dimension to the identification and awareness of ESG issues globally, numerous unresolved issues become evident. ESG frameworks have been built to assess corporate sustainability as it relates to firms in their “home” countries (typically with a focus on developed countries), with limited applicability and transferability to emerging markets. International firm activities are often not captured in detail and not comprehensively mapped across firm subsidiaries and a firm’s corporate supply chain where ESG issues are prone to happen, and ESG scores do not comprehensively integrate views and voices from various local stakeholders that are impacted by firm activities, particularly indigenous communities.Research limitations/implicationsResearch on ESG ratings in the context of multinational business research is generally sparse and fragmented, thus creating opportunities for future research to expand on existing and emerging findings.Practical implicationsThe paper creates awareness of issues to consider when using ESG ratings in cross-country studies and for assessing the ESG performance of MNEs and EMNEs: ESG scores can be subject to bias and are not weighted by materiality, which can be misleading for portfolio construction and performance measurement purposes. Managers need to be aware that ESG scores are often not capturing ESG issues occurring in supply chains and ESG issues affecting local communities.Originality/valueThis study enriches the understanding of ESG in the context of multinational business research practice.

Board characteristics and sustainability performance: empirical evidence from emerging markets

PurposeThis study aims to investigate the effects of board attributes, i.e. board independence, gender diversity, board size and board activity, on the sustainability performance of 439 publicly-listed non-financial companies across 20 emerging countries over the period of 2010–2019.Design/methodology/approachWe use Refinitiv environmental, social and governance (ESG) performance scores and board attributes variables derived from Thomson Reuters Eikon database. We examined the relationship between board features and sustainability performance by using the dynamic panel two-step system generalized method of moments estimator.FindingsOverall, our findings suggest that smaller, gender diverse and independent boards that convene frequently achieve better sustainability performance. The authors document a positive relationship between board gender diversity and sustainability performance across a broad spectrum of sustainability indicators. The authors also find evidence that board independence has a positive impact on two sustainability performance measures, i.e. environmental and governance performance. Although board size does not influence aggregate sustainability measures (ESG score, ESG controversies, and ESG combined score), the authors find a negative relation between board size and governance performance. Finally, board activity seems only relevant in explaining ESG controversies, i.e. other things being equal frequently held board meetings significantly reduce sustainability issues (ESG controversies).Practical implicationsThe authors’ findings provide implications to support regulators and emerging market companies on how to improve sustainability performance through the design and use of specific governance mechanisms. These interventions will help resolve agency problems among different stakeholders and, in turn, benefit sustainability.Social implicationsThis study also has social implications because it sheds light on how companies may change their attitudes towards sustainable practices through adjusting their corporate governance structures to increase the welfare of the society.Originality/valueThis study examines the behaviour of companies in emerging markets on sustainability performance by discussing a broad range of board characteristics and covering a large sample of emerging markets. Thus, it provides valuable insights to the companies for further growth opportunities in emerging markets.

ESG Disclosure, Risk-taking and Value-An Empirical Study of Commercial Banks in Asia

This study investigates the relationship among Asian commercial banks’ environmental, social and governance (ESG) scores, risk-taking and value. The empirical results find that for banks either already in high or low risk, an increase in ESG scores is significantly associated with a decrease in risk and a decrease in bank value. These two results corroborate the stakeholder theory and the overinvestment theory, respectively. In addition, this paper also tests the correlation between risk-taking and ESG, concluding that although ESG posts negative effect on bank’s value, ESG and risk together are significantly associated with an increase in bank value, compensating for the inevitable impact of higher ESG resulting in reduced bank value.

An empirical study of the relationship between the busy outside directors and indicators of ESG performance

In this article, we analyse whether the management structure of a company plays a role in the sustainability of companies. More specifically, we study the impact of occupied outside directors, outside directors sitting on several boards of directors, on the environmental, social and governance (ESG) performance of the company. We collect information about board characteristics, information about the board and management from MSCI ESG Research and financial information from Compustat. The study collects data based on panel data, which ranges from 2014 to 2020. The final sample consists of 550 US companies over a five-year period and contains 3850 firm-year observations. The study finds a positive relationship between busy outside directors and ESG performance. Busy outside directors have a positive impact not only on the overall ESG score, but also on individual ESG components. The environmental score is most affected by busy external directors, while the governance score appears to be little affected. Contrary to the theory that busy outside directors are overly engaged and degrade the fixed value, the findings support the theory that busy outside directors improve a company's sustainability performance because of their engagement, experience and the ESG performance.

Do Environmental, Social and Governance (ESG) Performance Scores Reduce the Cost of Debt? Evidence from Indian firms

This study aims to assess the impact of Environmental, Social, and Governance (ESG) ratings on the cost of debt of Indian firms from the year 2015 to 2020. One of the challenges that corporate India is going to face moving forward is that regulations with respect to environmental conservation, transparency, corporate social responsibility, and corporate governance will get stricter. This will undoubtedly push the companies to follow better ethical practices, adopt fair employee policies, and safeguard the environmental policies. So, this paper intends to evaluate the ESG lens of Indian companies concerning their financing decisions, viz the cost of debt. The firms under investigation are listed on the NIFTY 500, which reflects the top 500 companies in the eligible universe based on complete market capitalization. Data was sourced from the Bloomberg database. The paper uses cost of debt as the dependent variable; ESG score & individual E, S, G scores as independent variables; Market capitalization, net debt to equity ratio, and percentage of women on board and total debt to total asset ratio as control variables. Since the data was in a panel data format, we performed panel data regression from FY2015 to FY2020, and the method used was Least Squares Method (L.S. and A.R.). Different models were considered and it was found that the cost of debt which is the dependent variable, had a negative coefficient i.e., higher the ESG score, lower the cost of debt component for the firm and according to our model, it could be significantly proven at 10% level.

Релевантність цінності оцінок ESG: дані європейських фондових ринків

The research is analyzing the value relevance of other comprehensive income and the environmental, social and governance (ESG) scores in regard to the share price in Europe (Italy, France, Germany and Spain). As part of the international and continuous developing capital markets, the disclosure of comparable financial information, based on global and quality standards, such as International Financial Reporting Standards (IFRS), is a key aspect for capital providers (investors, banks and other creditors) in making their investment decisions or management risk assessment. Depending on the category of financial information users, the relevance of the information provided by comprehensive income and other comprehensive income can be perceived differently, and thus managers are interested in overall performance, while investors are interested in return on investment and creditors in the company's performance from a solvency perspective. In the last years, the evolution of capital markets proved that besides the companies’ performance respectively financial information provided, an important role in stakeholders’ decisions is performed by the non-financial information, respectively ESG performance. The association between ESG, other comprehensive income, and share price was analyzed through the Ohlson price model, considering the impact of financial and non-financial information. The sample analyzed is through a period of 5 years 2017- 2021 and the data was collected through Thomson Reuter’s Eikon Database. The research has concluded that there is a positive and significant influence of main ESG scores on the share price but not in the case of other comprehensive income. And the value relevance of ESG scores is reflected on the investors’ behavior and their vision over sustainable investments.

Industry-Level Impact of Environmental, Social and Governance (ESG) Factors for Alternative Investment

This study takes S&P500 companies’ ESG disclosure score and Environmental，Social and Governance disclosure score separately and using SVD algorithm to get the industry-level ESG score graphs. Through analyzing the graphs, we found that the leisure products, tobacco, automobiles industries occupied the top behaviour under the total ESG disclosure score, which deserves to mention that the tobacco, which is normally regarded as the sin stock and shunned by the investors, ranks second among all the industries. For Environmental, Social and Governance disclosure score separately, leisure products, real estate management & devel, tobacco industries occupy the first place respectively, and the disclosure score for Governance for all industries is overall higher than Social and Environmental. In conclusion, this study provides guidance on stock recommendation for ESG investors.

QUAIS SÃO AS POLÍTICAS E PRÁTICAS EM RECURSOS HUMANOS MAIS UTILIZADAS PELAS EMPRESAS COM MELHORES ÍNDICES ESG NO BRASIL?

ABSTRACT Research on the interaction between people management and sustainability in Brazil is recent, although it corresponds to a growing movement. The present study aimed to investigate which human resources policies and practices are most commonly used in Brazilian companies that stand out in ESG (environmental, social and governance) terms, and to find out, among these policies and practices, which would contribute the most to ESG ratings. For this purpose, the 106 Brazilian companies available in the Refinitiv ESG scores system were analyzed for the period from 2015 to 2019, considering the metrics for the category workforce (social dimension). Results showed that most ESG top-tier companies have already incorporated several workforce-related policies; however, the practice still lags behind the policy. Additionally, some metrics were identified as opportunities for improvement, such as the implementation of certain practices regarding the supply chain, the existence of a team focused on health and safety, and the implementation of training and development, as well as diversity and opportunity policies.

The determinants of ESG in the banking sector of MENA region: a trend or necessity?

PurposeAs reporting environmental, social and governance (ESG) information is not yet mandatory in all countries, it is intriguing to understand ESG’s underlying driving mechanisms. This study aims to investigate ESG determinants in the banking sector of the Middle East and North Africa countries.Design/methodology/approachThe authors gather data for 38 listed banks for the period 2011–2019. The data used is threefold as follows: data related to ESG; firm-level; and country-level data. While ESG and firm’s level data are taken from Refinitiv, country-level data are extracted from the World Bank. Using panel regression, the authors test the effect of firm- and country-specific variables on the overall ESG score and its pillars.FindingsResults indicate that banks’ ESG scores are negatively affected by performance and positively affected by size. The level of economic development exerts a negative impact on the environmental pillar while the social development exerts a positive impact on ESG and governance pillar. Corruption is the only country-level that gathers a homogenous effect on ESG scores. Finally, the three pillars follow heterogeneous patterns.Originality/valueThis study extends the scope of previous studies by introducing new country-level independent variables to contribute to the understanding of ESG antecedents.

Comparing the informativeness of sustainability disclosures versus ESG disclosure ratings

PurposeThe purpose of this paper is to examine the impact of sustainability disclosures and disclosure ratings on firm value. This paper compares the informativeness of sustainability disclosures in company reports versus environmental, social and governance (ESG) disclosure ratings. The authors examine the extent to which they provide incremental information.Design/methodology/approachThe sample consists of panel data from over 2,600 publicly-listed non-financial US companies for the period 2014–2018. The authors obtain sustainability disclosures from Sustainability Accounting Standards Board (SASB) Navigator and ESG disclosure scores from Bloomberg. The authors regress market value and/or stock price on sustainability disclosures and ESG scores to evaluate information content.FindingsESG scores are positively associated with market value and price. Sustainability disclosures in the form of metrics and company-tailored narratives provide incremental information content on market value and/or price. Boilerplate disclosures reduce market value and price. Sustainability disclosures and ESG scores provide incremental information, suggesting that it would be beneficial to harmonize standards for reporting sustainability disclosures.Research limitations/implicationsThe limitation is that the authors have only considered sustainability disclosures for a sample of US companies from two sources – SASB Navigator and Bloomberg.Practical implicationsThe paper provides some evidence that may be pertinent to the debate on whether to harmonize the guidance on reporting sustainability issues.Social implicationsThe paper provides evidence on the benefits to firms for reporting sustainability issues.Originality/valueThis paper is among the first to analyze company sustainability disclosures obtained from two different sources – SASB Navigator and ESG disclosure ratings – and compare them for relevance for company valuation. With SASB Navigator, the authors obtain further refinement into the nature of the information provided in the sustainability disclosures, that is, boilerplate, company-tailored or metrics disclosures.