ESG Index Research Articles

Companies adjust tax payments to offset changes in publicly perceived impact on environment, social, and governance factors

Corporate tax avoidance is a significant international issue, resulting in annual losses of USD 100–240 billion for governments globally. Understanding the relationship between firms’ corporate social responsibility (CSR) and tax avoidance activities is crucial to uncovering their motivations for tax avoidance. However, this relationship remains unclear. This study investigates firms’ tax payment motivations from environmental, social, and governance (ESG) perspectives by examining samples of firms with high, low, and no ESG-related reputational risk. We utilize the ESG index, which offers a broader scope than conventional CSR measures. Our empirical analysis includes 3981 firm-year observations from 31 OECD countries between 2017 and 2019. To determine the relationship between ESG and tax avoidance, we develop a reputation-based ESG risk dataset that addresses the endogeneity associated with managerial decisions and simultaneity bias. This study is among the few that explore the international relationship between ESG performance and tax avoidance, contributing to the shift from CSR to ESG in discussions of tax avoidance. Our findings reveal that companies’ tax payment behavior varies based on their ESG reputational risk. Specifically, firms with high ESG risk pay more taxes when their ESG risk is elevated, whereas firms with low ESG risk do not alter their tax payments based on ESG risk. Additionally, firms without any ESG risk tend to pay more taxes as their ESG scores increase.

An Analysis on ESG Index on Investor Invesment of Firms & Stock Performance: Theoretical Perspective in Exploration of Overlap of ESG and Sustainable Development

An Analysis on ESG Index on Investor Invesment of Firms & Stock Performance: Theoretical Perspective in Exploration of Overlap of ESG and Sustainable Development

Assessing the Effect of Changes in Environmental Policy on the ESG Index of the Stock Market

Assessing the Effect of Changes in Environmental Policy on the ESG Index of the Stock Market

Financial products’ structuring in the sustainable financing market

Subject. The article addresses theoretical and practical lessons learned in transaction structuring in the ESG segment. Objectives. The aim is to design a structured product (SP) of sustainable financing (ESG SP), and provide rationale for its effectiveness in investment strategies of responsible investors. Methods. The study employs general scientific research methods through logical, comparative, and statistical analysis in the process of analyzing foreign practice, as well as scientific publications by domestic and foreign authors. Results. Our analysis confirmed the assumption that structuring financial products in the sustainable financing market will increase capital inflows and increase its liquidity, which will have a positive impact on the availability of financial resources for issuers pursuing sustainable development goals. The findings indicate an increased interest in structured ESG products in all three categories against the background of the "merger" of securitized products with ESG products. There is a trend in the development of SP of a "charitable orientation". It is necessary to develop a new ESG index that most accurately reflects the ESG vector of companies as the basis of structured ESG products. Testing the presented ESG SP demonstrated prospects of this tool for responsible investors. Conclusions. In the current financial market environment and the expanding variety of financial instruments, structured ESG products with their inherent advantages and risks will be in demand.

Does the stock market react to the sustainability index reconstitutions? Evidence from the S&P BSE 100 ESG index

Does the stock market react to the sustainability index reconstitutions? Evidence from the S&P BSE 100 ESG index

The impact of ESG strategies on growth in the logistics industry

The aim of the article is to analyse the relationship between company growth, measured as an increase in Earnings Per Share (EPS) in 3- and 5-year periods, and companies’ financial condition, measured using the Altman z-Score (AS) model. The study was carried out on the example of companies included in the WIG Index and Warsaw Stock Exchange Index (in Polish: Warszawski Indeks Giełdowy – WIG) Environmental, Social, and Governance (ESG) between 2013 and 2020. Furthermore, among the companies included in the WIG index, companies belonging to the logistics industry were distinguished. An analysis of linear and panel relationships was used to verify the nature of the relationships between the variables taken into account. The z-Altman index was found to have a positive effect on company growth in a 3-year period for companies from the transport and logistics industry and all companies included in the WIG ESG index. Regarding company growth over the longer 5-year period, the influence of the z-Altman index on growth was not observed. Therefore, the results for companies in the WIG index show that for company growth in both the 3- and 5-year periods, the financial and economic condition of a company, measured by the z-Altman index, has no impact on the size of this growth, which was also confirmed by panel models.

ESG and Smart Beta Investing: A Synergistic Approach to Indian Equity Investing using the NIFTY 100 ESG Index and Multi-Factor Weighted Smart Beta Strategies

Smart Beta Investing Strategies have acquired momentum in emerging markets over the past decade; however, they have yet to be investigated in academia, and researchers are unable to provide empirical evidence. Previous research on the Indian equity markets and the clever beta strategies and factors has indicated that there is some optimism in the field. The authors augment the current corpus of research by employing an ESG-filtered index in conjunction with the conventional factors of value, size, and momentum to identify the ten most optimal stocks for each feasible portfolio configuration. A single factor and multi-factor weighting scheme are implemented to determine the ultimate portfolio and return. The Smart Beta portfolio exhibits superior returns when contrasted with its passive counterparts, as evidenced by statistical tools and risk-return characteristics. The absence of empirical evidence and a scarcity of data result in certain limitations for the study.

Demystifying the dynamic relationship between news sentiment index and ESG stocks: Evidence from time-frequency wavelet analysis

Using the Time-Frequency Wavelet Analysis, this study investigates the dynamic connectedness between the News Sentiment Index (NSI) and ESG leader indices of developed countries. The empirical findings clearly show nontrivial dynamic comovements between NSI and the ESG indices and the existence of the ESG market volatility in different frequency scales. We also report some discrepancies in cross-linkage patterns among different countries. In particular, such associations for some countries (e.g., Australia and the United Kingdom) are negative, with the leading role of the ESG index against market risk due to high fluctuations in sentiments. These findings suggest that ESG stocks possess potential hedging and diversifying features and safe-haven attributes against market risk driven by negative sentiment during the outbreak of Black Swan events. Our empirical results have insightful implications for investors, portfolio managers, and policymakers.

How the social dimension of ESG influences CEO compensation: Role of CEO and board characteristics

AbstractThis paper examines whether social disclosures impact CEO compensation considering various CEO and board controls. By categorizing CEO‐specific attributes into CEO duality, CEO academic diversity, and insider CEO, as well as including board size and board independence as board‐specific controls, the study tests their effects on CEO compensation. This research further explores whether board gender diversity moderates the association between social disclosures and CEO compensation. The paper uses a balanced panel dataset of 67 firms extracted from the NSE Nifty 100 ESG index and applies the panel‐corrected standard error (PCSE) model as a baseline methodology. The findings revealed that the environmental, social, and governance (ESG) disclosure score significantly impacted the CEO compensation, whereas social disclosure scores assessed independently failed to create a significant association with the same. Subsequent investigation also showed a significant positive relationship between the number of female directors on the board and CEO compensation. However, female directors on the board could not amplify the firm's social disclosure practices, leading to an insignificant impact on CEO compensation. While board independence, board size, ownership structure, and CEO duality significantly affected the above relationship, insider CEO status could not. Furthermore, robustness checks using the propensity score matching (PSM) and generalized method of moments (GMM) models were also conducted to test the validity of the above results. The findings of the work offer insights to help managers, organizations, and policy planners make decisions concerning women directors, social disclosures, and CEO compensation.

A Hierarchical Approach to a Tri-Objective Portfolio Optimization Problem Considering an ESG Index

Traditional portfolio construction primarily revolves around a bi-objective approach, focusing on minimizing portfolio variance while maximizing expected returns. However, this approach leaves out other objectives that could interest decision makers. In this work, we incorporate an extra objective, namely the environmental, social, and governance index (ESG), as a secondary objective. This addition empowers investors to customize their portfolios by defining explicit trade-off thresholds between expected returns and risk, considering the ESG index. To achieve this goal, we make use of external archiving techniques and evolutionary algorithms. In particular, we first find approximate solutions to the bi-objective problem; then, we look for efficient solutions for ESG. We tested our approach with data on the Dow Jones, S&P500, and Nasdaq100 from Yahoo Finance. The results show that the proposed methodology can identify portfolios with good returns and risks considering ESG.

How green governance empowers high-quality development: An EKC framework-based analysis of ESG and green total factor productivity.

High-quality development represents a fundamental shift in China's economy from scale and speed to quality and efficiency. In this transition, environmental, social, and governance (ESG) practices are not only closely integrated with China's development strategy but have also become a core standard for measuring development quality. Nevertheless, research on how ESG practices specifically promote high-quality development in Chinese enterprises remains limited. Based on the environmental Kuznets curve (EKC) theory framework, this study uses data from the Huazheng ESG Index from 2009 to 2022 and employs fixed effect models, mediation effect models, and heterogeneity analysis to examine the specific impact of China's ESG practices on corporate high-quality development from multiple dimensions. The results show that there is a "U-shaped" relationship between the ESG practices of Chinese listed companies and green total factor productivity (GTFP). Initially, improving ESG practices may temporarily suppress GTFP, but as ESG levels further improve, they exhibit a significant positive impact on GTFP. Corporations significantly boost productivity by alleviating financing constraints and promoting green technological innovation, although the direct impact on technological advancement remains relatively limited. In China's western regions and industries such as manufacturing, electricity, heat, gas, and water production and supply, wholesale and retail, and information transmission, software, and information technology services, the positive effects of ESG on GTFP are particularly evident. Based on these findings, it is recommended that governments and financial institutions collaborate to promote green credit policies and increase support for the research and development of green technologies. Additionally, environmental education and resource use optimization should be strengthened, especially in industries such as agriculture, forestry, animal husbandry, and fisheries, and the exchange of ESG technologies and experiences between industries should be encouraged.

Forecasting of S&P 500 ESG Index by Using CEEMDAN and LSTM Approach

Forecasting of S&P 500 ESG Index by Using CEEMDAN and LSTM Approach

The Impact of Environmental, Social, and Governance Disclosure on the Performance of Saudi Arabian Companies: Evidence from the Top 100 Non-Financial Companies Listed on Tadawul

This study investigated the relationship between environmental, social, and governance (ESG) disclosure and the performance of Saudi Arabian companies. We analysed panel data from the 100 non-financial companies listed on the Saudi stock exchange (Tadawul) from 2017 to 2022. Using fixed effects, random effects, and generalised method of moments (GMM) models to account for endogeneity concerns, we examined the impact of ESG disclosure on the return on assets (ROA), return on equity (ROE), and Tobin’s Q. An ESG index was constructed through a principal component analysis of individual environmental, social, and governance scores. Our results indicate a significant positive relationship between ESG disclosure and companies’ key performance variables across all models. These findings are consistent with stakeholder theory and signalling theory, suggesting that comprehensive ESG practices can lead to better financial performance and serve as a positive signal to stakeholders. The study also reveals sector-specific differences, with non-manufacturing firms showing stronger positive relationships between ESG disclosure and performance measures compared to manufacturing firms. Additionally, we find that firm size, age, and liquidity are important factors influencing the ESG–performance relationship. This research contributes to the growing literature on ESG and corporate performance in emerging markets, offering valuable insights for policymakers, investors, and corporate practitioners in Saudi Arabia’s evolving sustainable business landscape. Our findings underscore the importance of ESG disclosure in driving sustainable and responsible business practices in the region.

Environmental Social and Governance Impetus and Firm Performance: Assessing the Role of Sustainability on Corporate Success

This study investigates the level and impact of Environmental, Social, and Governance (ESG) reporting among non-financial firms listed on the Pakistan Stock Exchange (PSX), aiming to draw conclusions on ESG reporting levels, its impact on financial performance, and the mediating role of investment rating. The findings indicate that while ESG reporting in Pakistan is increasing, compliance is below 50% for most indicators, with social sustainability averaging 53.36%. Environmental sustainability reporting is associated with improved Return on Assets (ROA) and Tobin's Q, highlighting better asset utilization and market valuation for firms that prioritize environmental disclosures. Similarly, social and governance sustainability reporting positively influence financial performance by enhancing employee productivity, customer loyalty, decision-making, and risk management. A composite ESG index demonstrates a holistic approach to sustainability, benefiting financial performance by improving stakeholder relations and capitalizing on sustainable opportunities. Investment rating mediates the relationship between ESG reporting and financial performance, suggesting that higher ESG disclosures lead to better investment ratings and, consequently, improved financial outcomes. This study aligns with existing literature from developed countries and extends the understanding of ESG reporting's benefits to a developing country context, specifically Pakistan. While ESG reporting is a well-explored area in developed countries, this study adds unique value by concentrating on non-financial firms listed on the Pakistan Stock Exchange (PSX), contributing to a relatively under-researched context in a developing country. Exploration of the mediating role of investment rating is a notable original contribution, revealing how higher ESG disclosures not only directly impact financial outcomes but also lead to improved investment ratings, which in turn enhance financial performance.

WITHDRAWN: Mimicking crypto portfolios in sustainable investment

In this paper, considering the difference in the energy demand level, we utilize the daily pricing data from 10/01/2019 to 06/30/2023 to construct mimicking crypto portfolios with 12 clean cryptocurrencies to replace the dirty cryptocurrency, Bitcoin (BTC). With a monthly rebalancing strategy, the mimicking portfolio closely matches the exposures to the risk factors of the BTC but with fewer specific risks. Furthermore, relying on the bivariate dynamic conditional correlation (DCC-) GARCH model, we compare the hedging capability of BTC and the corresponding mimicking crypto portfolio against movements of returns of sustainable assets. The empirical results show that the mimicking crypto portfolio provides ESG investors with a cheaper hedge tool of higher hedge effectiveness compared to the BTC. Moreover, we find that the mimicking crypto portfolio can act as a strong safe haven for the S&P Global Clean Energy Index and S&P Latin America Emerging LargeMidCap ESG Index during periods of market stress. Therefore, the mimicking crypto portfolio is a more attractive option for ESG investors due to its superior hedging efficiency and the added environmental advantages.

The Financial Feasibility of Investing in a Sustainability Index in India

ESG is at the center of dialogue for investments, corporate governance and management. It used as an acronym for ‘Environmental, Social and Governance’ factors. The rapid rise of ESG has led to the prominence of socially responsible investing and has created a dual objective for investor’s capital. Researchers have previously studied the volatility of sustainable investments and whether SRI affects portfolio performance. Analyzing the financial feasibility of investing in a sustainability index was done by utilizing the historical data of returns on BSE ESG Index, NIFTY 500 Index and the BSE ESG 100 Index from October 2017 to April 2024. S&P BSE 100 ESG Index was used as a proxy for a sustainability index and the S&P BSE 100 Index was the index used to proxy traditional investments. This study has utilized financial ratios along with EGARCH and Granger causality test to understand the risk-reward characteristics of sustainable investments and compare them with traditional investments to understand whether it is financially viable to be a sustainably responsible investor. T test was conducted to identify whether is a significant difference between the returns of the sustainability index and its parent index. Results suggest that the sustainability index has a lower risk-adjusted return than traditional investments however, there is not a significant difference between the returns of the sustainability index and its parent index. There is a presence of strong persistent volatility in the sustainability index and negative shocks have a greater impact on the volatility of the index. Data also suggests a bi-directional relationship between the S&P 500 ESG Index and India’s sustainability index. The study recommends investors to consider the cost associated with investing in sustainability themed instruments while also taking into considerations the factors which are responsible for volatility of sustainable investments as well as the asymmetrical impact of negative shocks on returns.

Constructing an Environmental, Social, And Governance (ESG) Index For Islamic Social Finance Institutions: Empirical Investigation From Indonesia

This study constructs an index to measure the performance of Islamic Social Finance (ISF) Institutions based on Environmental, Social, and Governance (ESG) dimensions. This quantitative research employs the Delphi Analytical Network Process (DANP) and Multistage Weight Index (MWI). The index is constructed using DANP, conducting empirical assessments using MWI, then developing indicators using Focus group discussion (FGD), in-depth interviews, and structured surveys. This study also empirically tests index's implementation on five ISF institutions in Indonesia. The high score of the governance factor in this study indicates that the five ISF institutions are still focused on enhancing governance. This ESG index for ISF institutions create in this research may cannot be applied generally to other nations or institutions. But this ESG-building indicators still can be utilized as a reference for adopting ESG in other institutions. This study contributes to the literature by creating an ESG index for ISF institutions, where more research is needed. The notion of ESG is connected to maqashid sharia and is particularly essential in how institutions execute good governance and social issues while focusing on environmental protection.

Digital transformation of enterprises empowers the development of new productive forces of enterprises

Based on the data of financial statements of A-share listed companies from 2015 to 2022 and ESG index data of Huazheng Company, this paper empirically analyzes the effect and mechanism of digital transformation on the new quality productive forces of enterprises. The results show that digital transformation can significantly promote the improvement of the new quality productive forces of enterprises, and the results are still valid after dealing with endogenous problems, eliminating special years and changing cluster test. Heterogeneity analysis shows that from the perspective of enterprise nature, the digital transformation of state-owned enterprises and high-tech enterprises has a more significant role in promoting the new quality productive forces of enterprises. The mechanism research shows that digital transformation can promote ESG practice of enterprises, and then promote the improvement of new quality productive forces level of enterprises. Therefore, it is proposed to accelerate the green transformation of enterprise development mode, promote the digital transformation of enterprises and corporate social responsibility governance by institutional supply, and strengthen the empowerment effect of internal governance of digital technology, hoping to provide useful reference for the development of new quality productive forces of enterprises.

Implementation of deep learning models in predicting ESG index volatility

The consideration of environmental, social, and governance (ESG) aspects has become an integral part of investment decisions for individual and institutional investors. Most recently, corporate leaders recognized the core value of the ESG framework in fulfilling their environmental and social responsibility efforts. While stock market prediction is a complex and challenging task, several factors associated with developing an ESG framework further increase the complexity and volatility of ESG portfolios compared with broad market indices. To address this challenge, we propose an integrated computational framework to implement deep learning model architectures, specifically long short-term memory (LSTM), gated recurrent unit, and convolutional neural network, to predict the volatility of the ESG index in an identical environment. A comprehensive analysis was performed to identify a balanced combination of input features from fundamental data, technical indicators, and macroeconomic factors to delineate the cone of uncertainty in market volatility prediction. The performance of the constructed models was evaluated using standard assessment metrics. Rigorous hyperparameter tuning and model-selection strategies were implemented to identify the best model. Furthermore, a series of statistical analyses was conducted to validate the robustness and reliability of the model. Experimental results showed that a single-layer LSTM model with a relatively small number of neurons provides a superior fit with high prediction accuracy relative to more complex models.

ESG index impact on the performance of education sector companies

ESG index impact on the performance of education sector companies