Environmental Social Governance Scores Research Articles

The Influence Of Environmental, Social, Governance (ESG) Pillars And State Ownership On The Company's Debt Costs

Topics related to environmental, social, and governance are currently interesting to research because the importance of sustainability principles in the business world is increasingly recognized. This research investigates the influence of the ESG pillar and state ownership on the cost of debt in non-financial companies. The analysis was carried out on public companies in emerging Asian countries during the period 2016 to 2023 using panel data regression. Using various theories such as agency theory, stakeholder theory, and signaling theory, this research proves that state-owned companies with better ESG scores have lower debt costs. An unexpected finding is that the social pillar has a positive effect on the cost of debt. For the environmental pillar, although it is negatively related to the cost of debt, the effect is not significant. Meanwhile, the governance pillar has a significant negative influence on the cost of debt in accordance with agency theory. It is hoped that the results of this research will contribute to providing insight to stakeholders, especially managers and company owners, regarding the role of ESG and state ownership in the magnitude of corporate debt costs

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 Risks and Financial Performance. Analysis of Romanian-Listed Companies

Abstract The term “sustainability” is often used interchangeably with the acronym ESG (Environmental, Social, Governance). This happens as investors trust ESG scores to provide an accurate measurement of a company's sustainability performance. The traditional approach for evaluating sustainability performance involves analysing the scores for a given company, for each of the 3 ESG pillars: Environmental, Social and Corporate Governance. Moreover, most studies show that these scores are positively correlated with financial performance. While this approach is rather straightforward, usually it is not exhaustive and fails to capture the risks behind a company's exposure to material ESG issues and its management. Therefore, this study proposes an approach based on material ESG risk, exposure and management scores. Particularly, this paper focuses on the sector-wide analysis of ESG risk scores and their correlation with financial performance, for Romanian-listed companies, using the most recent data from one of the largest ESG rating provider. The methods employed are data analysis & visualization and correlation analysis. The results reveal, on average, a year-on-year decrease of the ESG Risk Score for the selected companies, along with increased exposure to material ESG risks, yet better management of these risks. Interestingly, the results do not show a significant correlation between the selected ESG variables and financial performance, measured by ROE, ROA and Tobin's Q, though a significant positive correlation between the Exposure and Management scores and firm size, measured by Market Cap, is found. Although there are limitations to this paper, for example, related to sample size or timeframe, it provides valuable insights on both the sustainability performance of Romanian-listed companies and, more broadly, its relationship with financial performance from a regional perspective.

Impact of environmental, social and governance initiatives on firm value: Analysis using AI-based ESG scores for Japanese listed firms

This paper is the first study to examine the relationship between ESG initiatives and firm value for almost all Japanese listed firms. By constructing our unique AI-based ESG (Environmental Social Governance) scores that have higher coverage than existing ESG scores, we score and analyze firms that have not previously been given ESG scores and provide more robust evidence for the impact of ESG initiatives on firm value. Our unique AI-based ESG scores are classified as ESG disclosure scores. We empirically show that Japanese listed firms engaging in ESG activities have a significantly higher Tobin’s Q and higher volatility. We use the COVID-19 pandemic to eliminate reverse causality in our analysis.

The Effects of Earning Management and Environmental, Social, Governance (ESG) on Tax Avoidance with Leverage as A Moderating Variable

The aim of this study is to determine effect of earning management and ESG on tax avoidance (TA) using leverage as a moderating variable. The underlying theories are stakeholder theory and agency theory. Samples of this study are 29 emitent listed on the IDX for the period 2018 - 2022. Earning management is measured using discretionary accrual with the Modified Jones Model method. ESG is measured by ESG score obtained from Refinitiv data. This research uses multiple linear regression by utilizing the Stata program. It is found that earning management does not have an effect on tax avoidance. ESG has an effect on tax avoidance. Leverage does not moderate the effect of earning management and ESG on tax avoidance.

ESG disclosures and corporate performance: A non-linear and disaggregated approach

The present study explores the association between Environmental Social Governance (ESG) disclosure and the operational, financial, and market-based performance of Indian corporations. The ESG score has been disaggregated into three sub-parts, i.e., EDS, GDS, and SDS (environmental, social, and governance disclosure scores, respectively). Using a sample of 305 companies listed in the NSE 500 (the largest stock exchange in India), linear and non-linear relationships among the variables have been investigated. The data has been compiled from 2014 to 2022 since the Indian government implemented the CSR mandate from the year 2014. The linear results of the dynamic panel data analysis technique have indicated that ESG disclosures significantly impact the market performance of business enterprises. Further, the non-linear results have indicated a U-shaped association between the composite ESG score and market performance. The disintegration of ESG score has revealed that while the social and governance components have a positive linear relationship with all performance indicators, the environmental sub-component has a U-shaped relationship with market performance. Hence, as the findings indicate that ESG-related activities impact firms positively after reaching a threshold, long-term planning and substantial resources are required to be dedicated in this direction.

Analyzing the Sentiment of Tweets Regarding Sustainability Practices to Predict Stock Performance

In recent years, sustainability has entered the mainstream consciousness of citizens, policy makers and companies across the globe. A key factor of sustainability in the investing world is ESG (environmental, social, governance) scores that demonstrate how sustainable the actions and decisions of a company are for employees, shareholders, and its ecosystem. In the United States, there has been a political divide in ESG values as investors seek to balance their drive to maximize shareholder value and promote positive change in society for all stakeholders. One platform that debate has occurred on is Twitter where users express their opinions on various companies. I analyzed the sentiment of users’ tweets on companies that have been regarded as sustainability leaders and companies that are laggards in this area. My analysis was completed through the Python coding language, a programming language designed for statistical computing and graphics. This data was then correlated with the stock performances of these respective companies during specific time frames of high Twitter activity. Ultimately, I sought to determine whether social media has a significant influence on the stock market and whether that will play a large part in driving sustainable change which will improve the environmental and social consciousness in the United States. Future research can identify what specific ideas or principles regarding sustainability are most widely discussed on Twitter and how this in turn relates to the decisions that companies make on key public policy issues.

Changes in the Relation Between ESG and Expected Returns According to ESG Awareness Levels

The COVID-19 pandemic has triggered an increased awareness and interest in ESG (Environmental, Social, Governance) among investors in the Korean market. Consequently, this study examines the changes in investors’ tastes and preferences regarding ESG before and after COVID-19 and analyzes how these changes affect the relationship between ESG and expected returns. The analysis revealed that, before COVID-19 the excess returns of portfolios constructed by buying stocks with high ESG scores and selling stocks with low ESG scores were not statistically significant. However, after COVID-19 the excess returns of these portfolios were significantly positive. This result suggests that prior to the pandemic, investors did not perceive ESG as a risk and showed no preference for ESG investments, leading to insignificant excess returns close to zero. In contrast, after the COVID-19 pandemic, increased interest in ESG resulted in a shift in investor preferences, leading to positive excess returns in ESG investments. The results remain consistent even after controlling for firm characteristics. Furthermore, when we examine the impact of each ESG component on expected returns separately, we find that heightened interest in environmental and social factors has a significant positive effect on expected returns.

The Influence of Environmental, Social, Governance (ESG) and Green Innovation on Company Business Performance

The research aims to provide empirical evidence on the relationship of ESG and green innovation to company's business performance. The independent sample of this research is ESG was measuring ESG score. Dependent variables green innovation were measures using innovation of green product and innovation of green process. Sampling used in this research is purposive sampling technique. The sample of this research consisted of 66 manufacturing companies from 2016 to 2021. The data collected was analyzed using panel data regression analysis. This result shows that ESG positively influence business performance proxied by Tobin's Q and ROA unsupported. Green Innovation, which is proxied by green product innovation on the company's business performance, shows mixed results. Where green product innovation positively influence the company's business performance proxied by ROA. Conversely, green product innovation does not influence company's business performance proxied by Tobin's Q. Meanwhile, Green Innovation proxied by Green Process innovation effect on the company's business performance is not supported. Thus, it can be seen that ESG has not become a concern for investors in Indonesia, as evidenced by the limited number of public companies that disclose ESG scores. Green Innovation which is proxied by green product innovation and green process innovation shows mixed results which shows that customers are also considering purchasing products from companies whose innovations produce environmentally friendly products

Warm-Glow Investing and the Greenwashing Hypothesis

There are many speculations, and some empirical indications in recent literature, that manufacturing firms are particularly prone to greenwashing, a practice by which such firms make misleading claims regarding their environmental performance or that of their products. Simultaneously, very recent evidence suggests that the representative investor has developed a preference for ESG (Environmental, Social, Governance) investments, a so-called “warm-glow” preference. The purpose of this paper is to provide a theoretical explanation why the preference for warm-glow investing may disappear if investors perceive firms in a sector to be greenwashing. We hypothesize that given the ubiquitous contemporary focus on greenwashing, rational investors will factor this greenwashing into their investment decisions. To test this, we investigate patterns of association of ESG scores, and both operating and stock performance for 3,245 listed firms, over a period of two decades, comparing the manufacturing and services sectors in the United States, Europe, and major Asian markets. We find that warm-glow investment is present within the services sector across all regions, but in the manufacturing sector we find noticeable regional differences. In particular, we find ESG-performance patterns for manufacturing firms in the United States that we consider consistent with perceptions of greenwashing. The contribution of this paper is to provide a nuanced perspective on how investors preferences change in relation to industry perceptions. The novelty in our study is two-fold: on the one hand, bringing the problem of greenwashing to the emergent literature on warm-glow investing; on the other, introducing warm-glow investing to the emergent literature on greenwashing.

Impact of corporate social responsibility on cost of debt in Scandinavian public companies

Research background: In recent decades, companies have paid increasing attention to corporate social responsibility (CSR) and its related performance. Scandinavian countries lead the world in CSR and sustainability. The good CSR performance of Scandinavian companies has motivated studies on this phenomenon, particularly on the connection between a company's CSR and its performance. One of the most important performance indicators and value drivers is the cost of debt. Purpose of the article: This study assessed the impact of CSR on the cost of debt in Scandinavian public companies. Methods: The research was divided into two stages. In the first stage, Scandinavian public companies were divided into two groups (with and without ESG (environmental, social, governance) disclosure scores) to reveal differences in the cost of debt. In the second stage, a fixed-effects regression model for balanced panel data sets was applied from 2011 to 2020 to assess the impact of ESG and its pillars on the cost of debt. Findings & value added: The results revealed that the cost of debt of companies in Scandinavian countries with ESG disclosure scores was significantly lower. The ESG disclosure scores of these companies have increased significantly over the past 10 years. We found a positive impact of CSR on the cost of debt in Scandinavian public companies. The increase in ESG disclosure and pillar scores reduced the cost of debt. These findings are valuable from a scientific perspective. Scandinavian public companies with ESG scores have higher financial risk, but lower cost of debt. These results support the importance of investors' behavior, information asymmetry, and signaling. The findings have several implications for shareholders, managers and creditors. They suggest that creditors consider ESG disclosures when determining a borrower's creditworthiness. Additionally, it is a message to regulators that the debt market values ESG disclosures.

Bayesian optimization of ESG (Environmental Social Governance) financial investments

Financial experts seek to predict the variability of financial markets to ensure investors’ successful investments. However, there has been a big trend in finance in the last few years, which are the ESG (Economic, Social and Governance) criteria, due to the growing importance of investments being socially responsible, and because of the financial impact companies suffer when not complying with them. Consequently, creating a stock portfolio should consider not only its financial performance but compliance with ESG criteria. Portfolio optimization (PO) techniques previously applied to ESG portfolios, are all closed-form analytical ones. But the real world is rather a black box with unknown analytical expressions. Thus, in this paper we use Bayesian optimization (BO), a sequential state-of-the-art design strategy to optimize black-boxes with unknown analytical and costly-to-compute expressions, to maximize the performance of a stock portfolio under the presence of ESG criteria soft constraints incorporated into the objective function. And we compare it to two other black-box techniques widely applied for the optimization of ‘conventional portfolios’ (non-ESG ones): the metaheuristics Genetic algorithm (GA) and Simulated Annealing (SA). Although BO has many theoretical advantages over GA and SA, it has never been applied to PO. Thus, this paper investigates whether BO can be used in the ESG PO framework as an alternative and compares it with GA and SA. This is the research gap to which this paper responds. To show the empirical performance of BO, we carry out four illustrative experiments and find evidence of BO outperforming the baselines. Thus we add another different optimization approach to the world of ESG investing: a black-box non-heuristic optimization approach through BO. Our study is the first paper that leverages BO and ESG scores into a PO technique. This paper opens the door to many new research lines in (ESG) portfolio optimization.

THE EFFECTS OF ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) ON CORPORATE PERFORMANCE

This study has the purpose to discuss the effect of Environmental, Social, Governance (ESG) disclosure on market performance. The variables used in this study involved the dependent variable (Tobin's Q), the independent variable (ESG disclosure score), and the moderating variable (ROA and ROE). The population is obtained by the companies listed on the Indonesia Stock Exchange in 2016-2020. Sampling is done by purposive sampling. According to the purposive sampling method, samples are from 67 companies. The multiple regression analysis is used as the analytical method in this study. The results of this study revealed that Tobin's Q has a negative and significant effects on ESG score through ROA and ROE.

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.

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.

Sustainable corporate governance and non-financial disclosure in Europe: does the gender diversity matter?

PurposeRecent regulatory changes in Europe have promoted non-financial reporting practices (e.g., Directive, 2014/95/EU) and gender diversity in decision-making positions. Special attention is devoted to promoting the gender balance on corporate boards as a key mechanism to enhance corporate governance effectiveness and better address multiple stakeholders' needs. With this in mind, this study intends to examine the impact of boardroom gender diversity on Environmental Social Governance (ESG) disclosure practices in the European listed firms' context.Design/methodology/approachThe study applies different panel data models on an extended sample of 1,392 firms from 21 European Union (EU) countries for six years (2014–2019).FindingsFindings allow to spotlight the positive role exerted by the presence of women directors on the boards in enhancing ESG disclosure, both at the overall and specific (individual ESG scores) level.Research limitations/implicationsPolicymakers and regulators might consider the study's evidence as a stimulus to continue in promoting strategic actions and reforms that foster gender equality and balance in corporate decision-making positions.Practical implicationsCreating a heterogeneous and diversified board of directors may support implementing a “sustainable corporate governance” recently claimed by the EC.Originality/valueThe study contributes to the literature by disentangling the links between gender diversity and ESG disclosure over a period that covers a long season of European regulations and measures that affected both non-financial reporting practices and the board of directors' composition. Accordingly, it can contribute to enhancing the practical and theoretical understanding of the pivotal role that gender diversity may exert in strengthening corporate governance and, in turn, corporate transparency and accountability behaviours about non-financial issues.

ESG Factors as a Determinant on Credit Ratings

This study examines how ESG (Environmental, Social, Governance) factors are incorporated in credit ratings in Korea. The empirical results show that ESG scores have, in general, a positive effect on credit ratings, suggesting that corporate ESG is reflected to some extent in credit ratings. Among the factors of ESG, the governance factor has a significant relationship with credit ratings. The result is obvious in that some important governance elements such as internal control devices, disclosure and transparency, and ethical management are included in the aspect of business management risk during credit evaluation. On the other hand, social and environmental factors have a partial or insignificant relationship with credit rating. As social interest in ESG increases, it is highly likely that ESG itself becomes one of the most important determinants on credit ratings in the near future. In such a case, the results of this study can be used as a reference for the decision logic of credit rating reflecting ESG.

Sustainability and financial performance relationship: international evidence

PurposeThe purpose of the article is to examine the relationship of corporate sustainability to firm financial performance by presenting international data.Design/methodology/approachThe sample includes non-financial companies from five emerging economies known as BRICS for a five-year period of 2014–2018. The study uses the ESG (environmental, social, governance) scores from Sustainalytics database and financial data from company reports. Panel regression models are developed to figure out the relationship.FindingsThe results of the article revealed that there is a positively significant relationship between sustainability performance and financial performance. Total ESG score has produced significant results while the individual scores of environmental, social, and governance have produced insignificant results; implying that the components of total ESG score have a joint effect on the financial performance.Practical implicationsThe results of the article have important practical implications for companies. Engagement in sustainable business practices will help improve the financial performance. In addition, the companies should be active in all components of sustainability.Originality/valueThe article contributed empirical evidence for sustainability-financial performance relationship by using the international evidence from five emerging economies.