Environmental Social Governance Performance Research Articles

The Impact of Environmental Social Governance (ESG) on Firm Performance with the Moderating Role of CEO Turnover

This research aims to investigate the influence of Environmental, Social, and Governance (ESG) on firm performance, measured by Return on Equity (ROE). Additionally, the study explores the moderating role of CEO turnover in the relationship between ESG and firm performance in publicly listed companies on the Indonesia Stock Exchange, with a sample of 33 companies from 2016 to 2022. The GMM estimator method is employed to address endogeneity issues, ensuring consistent and unbiased estimation results. Findings indicate that overall ESG performance significantly affects firm performance, emphasizing the importance of implementing ESG principles in Indonesian businesses to enhance ROE. Other results reveal the pure moderating role of CEO turnover, weakening the relationship between ESG and firm performance. Therefore, proper planning and guidelines for CEO succession are crucial for improving firm performance and sustainability. The research results carry important implications for Indonesian companies to consider ESG implementation in their business strategies. Furthermore, CEO succession planning management is key to maximizing the positive impact of ESG on firm performance. This study contributes to a deeper understanding of how ESG factors influence firm performance in the Indonesian business context, highlighting the significance of executive leadership in managing these impacts.

Characteristics of the Audit Committee and the Environmental, Social, Governance (ESG) Performance in Indonesian Companies

This study intends to experimentally demonstrate the impact of audit committee features on Environmental, Social, and Governance (ESG) performance in companies listed on the Indonesia Stock Exchange. The study specifically looks at how the number, tenure, independence, expertise, and frequency of audit committee meetings can impact ESG performance. A sample of the companies comprised in the Bloomberg database was used to gather information on the audit committee’s composition and ESG performance. With a total of 288 observations covering the years 2018 to 2021, the sample consists of 72 firms. According to the study’s conclusions, the size of audit committees and their level expertise have a positive impact on ESG performance. However, the length of the audit committee’s term, independence, and the frequency of audit committee meetings do not significantly impact ESG performance. These findings highlight the critical oversight functions that audit committees perform in maintaining a company’s commitment to all stakeholders and show that businesses typically follow social norms and international standards. Keywords: audit committee characteristics, ESG performance, corporate governance

Assessing the impact of ESG scores on market performance in polluting companies: a post-COVID-19 analysis

The study aims to unravel the impact of Environmental Social Governance (ESG) scores on the firm’s market performance of polluting companies. Moreover, the study also finds out moderating effect of green initiatives. The study’s population consisted of 67 companies that were chosen from the list of polluting companies given by the Central Pollution Control Board of India for the post-COVID-19 timeframe of 2020–2023. Regression analysis was conducted to analyze the relationship between the variables. The results indicate that the performance of ESG will improve the financial performance of the company. In most cases, the results suggest that firms with heightened ESG performances have better market performance. Furthermore, the results show that there is no moderating effect of green initiatives. This study’s findings have important implications for stakeholders. The examination’s findings should help managers understand the state of ESG and financial market performance after the coronavirus crisis, as well as the relationship between FP and ESG responsibility fulfilment. The study has significant practical implications that may help managers create plans and guidelines for implementing and improving ESG scores to maximize performance. Population was the major limitation of the study.

ESG performance and financial distress prediction of energy enterprises

In the current drive to cut global carbon emissions, energy companies are facing intensifying policy pressures. This study investigates the impact of ESG (Environmental, Social, Governance) performance on the risk of corporate financial distress in the energy sector. Using a tripartite methodology of sentiment, topic, and word frequency analysis, we measure the characteristics of texts of ESG reports. These ESG-related textual variables, combined with company carbon performance and other variables, are integrated into the CatBoost algorithm to predict financial distress. The empirical findings indicate that text words, topics and sentiments derived from ESG reports prove to be effective in forecasting financial distress in energy companies. Additionally, the CatBoost used in this study surpasses other models such as logistic regression and decision trees in predictive capability. This study demonstrates how incorporating textual analysis of ESG reports enhances the predictive accuracy for financial distress in energy companies, highlighting the important role of comprehensive ESG evaluation in financial risk assessment.

Using Machine Learning to analyze ESG performance in Project-driven Sectors

Sustainability in project management is essential as stakeholders not only seek economic efficiency but also eco-friendliness, social effectiveness, and sound governance structure to successfully plan, manage, and implement projects. Therefore, it is important to explore key sustainability indicators that impact complex project dynamics. The aim of this research is to identify trends and characteristics of Environmental, Social, Governance (ESG), and financial performance of project-driven sectors by using machine learning techniques. This research investigates three project-oriented sectors (Information Communication and Technology (ICT), Engineering-Construction, and Service) that directly support United Nations’ sustainable development goals. Then, specific ESG performance and key financial performance of three sectors are analyzed in detail. This study also applies Categorical Boosting (CatBoost) machine learning modeling for analysis, and the Shapley Additive Explanation (SHAP) algorithm to explain the machine learning algorithm. This research provides stakeholders a roadmap for achieving ESG goals in project management and can help project-driven organizations compare, contrast, and improve their ESG performance for the future.

Environmental, Social, Governance (ESG) Performance and Capital Structure: The Role of Good Corporate Governance

Objective: The purpose of this study is to investigate the impact of Environmental, Social, and Governance (ESG) performance on capital structure, using good corporate governance (GCG) as a moderating variable. Design/Methods/Approach: The sample comprises companies listed on the IDX outside the financial sector that issued financial and sustainability reports between 2017 and 2021. The Global Reporting Initiative (GRI) index measures ESG performance, the capital structure is measured by leverage, and the moderating variable of good corporate governance is measured by independent commissioner proportion. The data are analyzed using the OLS regression technique. Findings: According to the estimation results, ESG performance positively affects the capital structure of non-financial enterprises. Furthermore, good corporate governance does not moderate the relationship between environmental, social, governance, and capital structure. Originality/Value: By focusing on ESG performance and capital structure as evaluated in emerging countries, this study adds to existing research on environmental and social performance and its impact on capital structure. Furthermore, GCG is included as a moderating variable in this study. Practical/Policy implication: Based on the findings, it is suggested that firm executives take steps to expand their ESG practices. This ensures sustainability and increases investor and creditor confidence, resulting in more efficient funding sources for the company.

Relationship between Board Characteristics, ESG and Corporate Performance: A Systematic Review

In recent years researchers have been paying significant attention to Environmental, Social, Governance (ESG) principles as a crucial factor in company performance. This paper aims to summarize the trends and findings in academic literature devoted to the board of directors as a determinant of ESG performance and non-financial disclosure quality. This paper also summarizes the key findings for a board’s moderating effects on the impact of ESG on corporate financial performance. The results of qualitative analysis of more than 70 empirical papers demonstrate that board independence is the most widely considered parameter, interpreted as a positive factor for strengthening a board’s monitoring function according to agency theory. There is no consensus on board size: larger boards include directors who represent the interests of a wider range of stakeholders (stakeholder theory), however, the increase in board size leads to a complicationof decision-making and controlling processes. Researchers mostly agree that an augmentation of women’ and foreigners’ representation among directors positively affects ESG performance and disclosure quality, although the lack of critical mass may dilute this effect. As for CEO’s role in the board, while some researchers argue that CEO duality enhances agency conflict, deterring corporate transition to ESG, other authors claim that a CEO’s organizational power may enhance the ESG transition due to a faster implementation of board decisions. One of the crucial determinants for this effect is the board members’ diversified professional expertise, including specialized education and experience, for the effective monitoring of managers’ performance. Finally, there is a growing interest in the role of board sustainability committees,which accumulate the required professional expertise for developing environmental and social strategies (resource-based theory). By examining the key board characteristics’ effect on corporate ESG performance and disclosure quality, this paper contributes to corporate governance literature, expanding the field for further research. Moreover, the paper highlights several understudied issues for further research.

Is There any Effect of ESG Performance in the Improvement of Financial Risk in ASEAN-5?

Public awareness in social and environmental sustainability became a challenge that turned into general assessments. ESG (Environmental, Social, Governance) performance became essential. Hence, the firm that does not apply ESG criteria in its business activities will face a consequence from investors impacting its performance, associated with financial risk. This study examines ESG performance within ESG score, ESG controversy, and BGD (Board Gender Diversity) on the total and systematic risk as a proxy for the financial risk of public companies listed on the stock exchange. This study uses a sample of 105 listed public firms from each stock exchange in ASEAN-5 (Philippines, Indonesia, Malaysia, Singapore, and Thailand) from 2016 to 2020 and applies panel regression analysis. The result suggests that ESG Score significantly influences total but not systematic risk in ASEAN-5. ESG controversy does not considerably affect total and systematic risk. BGD significantly influences total risk but not systematic risk. The findings will help investors and portfolio managers evaluate how ESG performance influences the firm's financial risk and make better investment decisions in ASEAN-5.

How Does ESG Score and Board Structure Affect Financial Performance? Evidence from ESG Sector Leaders IDX Kehati

The rise of sustainable investing, an investing strategy considering ESG (environmental, social, governance) factor of the company has spread worldwide, including in Indonesia. Recent phenomena of minimum percentage of woman on board in state-owned enterprise policy by Indonesia Ministry of State-Owned Enterprise and the new two ESG themed index which consists of state-owned enterprise has intrigued to assess the relationship between board structure towards financial performance of the companies. One of the index is “ESG Sector Leaders IDX KEHATI“ which comprises of stocks with an ESG performance assessment above their industrial average value. Using ROA and ROE as the dependent variable and ESG and board structure variables and firm size, asset to equity ratio, and firm age as control variables. It is found that ESG has negative non-significant relationship towards both ROA and ROE. Board independence and board gender diversity has positive significant effect towards both ROA and ROE.

Understanding how ESG-focused airlines reduce the impact of the COVID-19 pandemic on stock returns

Incorporating environmental-social-governance (ESG) into a company's operations is an innovation strategy for contemporary businesses and a countermeasure for airline companies under COVID-19's influence. This research employs an autoregressive jump intensity trend (ARJI-trend) model to analyze the effects of COVID-19 and ESG ratings on the stock performance of the U.S. airline industry. We find that the ARJI-trend model captures the short- and long-run impacts of COVID-19 and ESG on stock return dynamics. Moreover, short-run stock return volatility converges to the original equilibrium level faster when a company has a higher ESG score, implying that promoting ESG does offer a defense mechanism to airline companies and that ESG performance is suitable for integration into business operational goals. The results lay the groundwork for understanding how an ESG focus might help airline companies to suffer less of an economic/financial impact during crises such as the COVID-19 pandemic.

Women board members’ impact on ESG disclosure with environment and social dimensions: evidence from the European banking sector

PurposeThis study aims to investigate the relationship between banks’ board structure and sustainability performance.Design/methodology/approachThe empirical quantitative paper covers a sample of 35 European banks that are listed at the EUROSTOXX 600. Regression analysis techniques were used in the analyses.FindingsResults indicate that board size, women ratio and independent directors ratio on board are positively and significantly related to environmental social governance (ESG), E and S disclosure scores. Also, we find that ESG disclosure is related to bank profitability.Practical implicationsFindings have implications for both policymakers and practitioners (bankers and investors). Large bank boards, which have women and independent members, could perform better in terms of ESG disclosure. The results also show that large banks and banks with high borrowing care more about sustainability. For banks to reach resources, they should perform well in terms of sustainability disclosure to their stakeholders.Social implicationsBanks should observe academic findings on corporate governance (CG) practices, which lead to a better ESG disclosure to structure their CG to improve at the best their disclosure policies: they should prefer larger boards with a high level of women and independence. In addition, we attach importance to the ESG performance of the banking sector due to its fund transfer functions. Banks transfer the deposits they collect to those in need of funds as loans. For this reason, it is important to which sector and which business they give credit. The importance of banks on ESG and their adoption of sustainability dimensions also affect their credit decisions.Originality/valueThis study examines the relationship between banks’ board structure variables and their effect on ESG, E and S scores separately. This study thinks that the G score can be a handicap for ESG-CG relations. Because chosen CG variables (women ratio, independent ratio, board size) affect G scores positively and can reason for positive ESG-CG relation. The environmental and social impact of women ratio, independent ratio and board size can be seen in this study.

Board of directors characteristics: How they are related to ESG rankings and value of Russian companies

Goal: the goal of this paper is to determine effects of board of directors characteristics on corporate value creation, taking into account ESG (Environmental, Social, Governance) principles. Methodology: the methodological tool applied in this study is an econometric analysis of panel data for 48 Russian non-financial public companies with ESG score provided by Thomson Reuters Eikon in the period from 2015 to 2020. Findings: we have found a non-linear impact of board size on ESG performance, and significant positive impact of board independence on both ESG performance and firm market value. We also find that higher board gender diversity leads to higher corporate ESG score and market value, while higher share of foreign directors does not affect significantly these indicators of performance of Russian companies. Board sustainability committee enhances both corporate ESG performance and market value, board strategy committee contributes to ESG score’s increase as well. Originality and contribution of the authors: our study contributes to the development of academic literature devoted to corporate governance effects on firm’s performance on understudied market, in the context of growing demand for corporate sustainability. Application of our findings will allow to formulate the best practices of corporate governance for market value creation of Russian companies basing on ESG principles.

Practical Applications ofE, S, or G: Analyzing Global ESG Performance

In <b>E, S, or G: <i>Analyzing Global ESG Performance</i></b>, in the Winter 2020 edition of <b><i>The Journal of Impact and ESG Investing</i>, Robert Bush, Jason Chen</b>, and <b>Eric Legunn</b>, all of <b>DWS Research Institute</b>, investigate ESG (environmental, social, governance) investing within and across four markets: the United States; Europe, Australasia, and the Far East (EAFE); emerging markets (EMs); and Canada. They apply a three-step framework to assess the risk and return with ESG investing. First, they use linear regressions to quantify any ESG-related excess returns over regional benchmarks. Next, they apply a multifactor model to assess whether any identified alpha comes from value or size premia. Finally, in regions where ESG investing seems to outperform benchmarks, the authors parse the specific pillar’s (i.e., “E,” “S,” or “G”) contribution to that alpha. They find statistically significant ESG-related alpha in EMs and Canada, largely unrelated to size and value factors. They note the pillar-sensitivity of alpha varies across regions: For example, the social pillar is a primary determinant in the United States, EAFE, and Canada. They also observe that the governance pillar, although historically most important to alpha generation in EMs, is declining in significance relative to the social and environmental pillars. <b>TOPICS:</b>ESG investing, portfolio theory, equity portfolio management, behavioral financial, theory, in portfolio management

Environmental, social, governance (ESG), and financial performance of European banks

Research Question: How do ESG and financial performance indicators vary according to different classifications of European banks? Motivation: Banks’ ESG performance and its relationship with corporate financial performance represents a field of continuous interest for researchers and practitioners. The results of previous studies are still mixed, either positive, negative, or even neutral. What’s new? The novelty of this paper is represented by the statistical comparison of variables that measure the ESG and financial performance of European banks based on three classifications that we propose (i.e. the geographical regions of Europe, functional currency, and cluster analysis on GDP and population of European countries, respectively). To the best of our knowledge, there are no studies applied to the banking sector, analyzing the selected variables between groups of banks according to the aforementioned classifications. So what? We contribute to the field by extending Thomson Reuters’ grouping of banks (Emerging and Developed Europe) with three more classifications. The comparison of ESG and financial performance data contributes to practice by highlighting which parts of Europe contain the banks with the highest and respectively the lowest values of ESG and financial performance, controversies, and audit fees. Therefore, the results will help investors, policymakers, regulatory bodies, bank managers, and auditors to acknowledge the significant differences within Europe and adopt appropriate measures that could improve the financial and sustainability performance of banks. Data: We collect data from Thomson Reuters Eikon, World Bank statistics, and EuroVoc for 108 European banks (81 from Developed Europe and 27 for Emerging Europe) for 2018, the most recent year on which all information is available. Tools: We conduct a cluster analysis on the macroeconomic variables of the study: the GDP per capita and the population. We used group tests and the ANOVA test as methods in analyzing the results. Findings and Contribution: We contribute with a quantitative study that fills the gap in the literature regarding significant differences that are obtained in ESG and financial performance of banks classified as Developed Europe versus Emerging Europe; Eurozone versus non-Euro countries; Western, CEE, Northern, and Southern banks; small GDP – large population and large GDP – small population clusters. Our methodology will improve future research in adopting better and more transparent classifications of companies analyzed at an international level.

CSR Committees and Their Effect on ESG Performance in UK, France, Germany, and Spain

The multidisciplinary nature of a corporate social responsibility (CSR) committee reflects the commitment as well as the expectations and demands of diverse stakeholders. So far, CSR committees have been mainly considered as variables of control in larger corporate governance models and independent variables that determine CSR or environmental, social, and governance (ESG) disclosure and its reporting quality. However, the effect on corporate performance has been biased to financial performance, so the potential of the analysis of the effect it may have on different facets of non-financial performance has not been exploited. Which it should, since it can be a fundamental tool to achieve sustainability. The objective of this contribution is to test whether companies with a CSR committee not only leads to higher economic scores, but also to higher ESG (environmental, social, governance) scores. To do this, we used regression panel data models in 197 listed firms in Spain, France, Germany, and the UK during the period 2005–2015 including the perspective of European organizations and completing the extant studies in US-based samples. Our results showed that 90% of companies in the sample had a CSR committee in 2014, and that those companies had significantly different ESG scores than those without a CSR committee. Having a CSR committee also triggered better non-financial performance when considering the four scores and the four countries independently (except for the economic scores in Spain). These results have great implications for practitioners, reflecting the importance of promoting these tools in an organization to enhance non-financial performance and sustainability.

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

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