ESG Performance Research Articles

Seeing is believing: Do face‐to‐face meetings between independent directors and investors enhance corporate ESG performance?

AbstractThis article explores the topic of whether face‐to‐face communication between independent directors and investors can help them obtain firm‐specific information and promote management to improve corporate environmental, social, and governance (ESG) performance. Our findings revealed a notable positive correlation between the frequency of independent directors attending shareholder meetings (IDASM) and ESG performance. The underlying mechanism for this correlation is that IDASM increases investment in research and development (R&D) and green patent applications, which can drive long‐term firm value. Further analysis reveals that independent directors attending annual shareholder meetings can more effectively enhance a company's ESG performance. Independent directors attending shareholder meetings also exhibits a more noticeable impact on improving corporate governance performance than environment performance and social performance. The effect becomes more pronounced when independent directors possess an accounting background, have shorter tenures, when the meetings attended by more minority shareholders, the degree of enterprise information asymmetry is high. The research results have reference significance for improve the information disadvantage position of independent directors, restrain short‐sighted behavior of management, and improving the role of shareholder meetings in protecting investor interests.

Sustainable development and firm value: How ESG performance shapes corporate success—a systematic literature review

AbstractThis study is designed to conduct a systematic literature review aimed at assessing the influence of environmental, social, and governance (ESG) performance on firm value. Although previous studies have explored their relationship, a comprehensive systematic review on this topic is still lacking. We conducted a detailed literature search in the Scopus and Web of Science databases and identified 73 papers published between 2016 and 2023 as the sample, covering annual trends, country and industry distribution, theoretical frameworks, proxy variables, research methods, research results, and provided direction for future research. We found a significant increase in the number of studies over the past 3 years. Cross‐country studies dominated the field, with most research adopting multi‐industry analysis, while studies focusing on a single industry were relatively rare. The stakeholder theory and agency theory were the most widely applied theories. Most studies showed that ESG performance had a positive effect on firm value, reflecting the growing importance that markets and investors placed on ESG performance and its contribution to long‐term firm growth. However, some studies reported negative or insignificant effects, noting that the effects of ESG performance varied by industry, region, and market environment. This study suggests that future research should explore the independent and interactive effects of each ESG dimension on firm value, focusing on dynamic relationships across industries and regions, using new methods and models, and incorporating moderating variables. This study provides practical guidance for firm managers and policymakers to optimize ESG practices, enhancing firm value and promoting sustainability.

Does AI elevate corporate ESG performance? A supply chain perspective

AbstractAs a pivotal catalyst for sustainable development, the evolution and integration of AI are propelling both companies and society toward a more efficient trajectory. Utilizing a multi‐period difference‐in‐difference (DID) model, the study assesses the impact of the 2019 China Artificial Intelligence Pilot (AIP) policy on corporate environmental, social, and governance (ESG). The study's findings are the following: (1) Optimizing corporate governance through artificial intelligence (AI), the AIP policy has significantly bolstered the ESG performance of companies in the pilot areas. (2) Mechanistic analysis demonstrates that the AIP policy elevates ESG by bolstering the efficiency of corporate supply chains. (3) Heterogeneity testing shows that the AIP policy exerts a more pronounced effect on non‐state‐owned companies, companies with high energy consumption, and those in the new energy sector. This manuscript furnishes empirical insights for evaluating the policy implications of AI development initiatives.

Impact of environmental, social, and governance performance on cash holdings in BRICS: Mediating role of cost of capital

AbstractAs businesses globally navigate the intricate landscape of environmental, social, and governance (ESG) practices, understanding their financial implications becomes paramount. The primary objective is to illuminate the impact of ESG performance on cash holdings (CHO) within the context of the BRICS nations. Additionally, the study aims to explore the mediating role of the cost of capital (COC) in shaping these relationships. The empirical analysis was conducted on comprehensive dataset over the period 2010–2022 of BRICS. We establish the regression analysis by utilizing a fixed effect and system GMM models. The empirical findings reveal a significant negative (−0.012 coefficient value) impact of ESG performance on CHO, indicating that a one‐unit increase in ESG can decrease the CHO by 1.2% and this effect is significant at 1%. This further highlights declining trend in cash reserves among companies embracing sustainability practices. Notably, the study documents the mediating role of the COC, showcasing its influence in reducing internal cash reserves in the presence of low external financing costs. The study highlights the financial benefits associated with robust ESG practices. Companies in the BRICS nations are encouraged to integrate sustainability considerations into their business strategies, recognizing the potential for reduced CHO and favorable COC outcomes. Beyond financial gains, the study underscores the societal and environmental contributions of ESG practices. This study contributes to the literature by uncovering the mediating role of the COC, providing a comprehensive understanding of how sustainability practices influence internal cash reserves in the context of diverse economic landscapes.

Environmental, social and governance (ESG) performance and abnormal positive tone

Purpose The purpose of this study is to explore the relationship between environmental, social and governance (ESG) performance and tone management in the annual report. This is based on the notion that managers, driven by personal interests, may use their ESG accomplishments by using an abnormal positive tone to enhance their reputation or career prospects. Design/methodology/approach Using panel data from Chinese listed companies from 2010 to 2022, this study first investigates the relationship between ESG performance and abnormal tone management. The study then uncovers this relationship is mediated through the mechanisms of equity-based incentive and analyst coverage. The conclusions of this paper hold even after a series of robustness tests, such as propensity score matching, Heckman two-stage method and two-stage least squares with instrumental variables. Findings This study finds a positive correlation between ESG performance and the presence of abnormal positive tone in annual reports. Furthermore, the mechanistic analysis reveals that managers in companies with strong ESG performance are motivated to use an overly positive tone, largely due to their vested interests in equity-based compensation. Moreover, in an effort to alleviate the pressure stemming from heightened financial analyst coverage and enhance the impression conveyed through analysts' reports, managers with superior ESG performance also tend to inflate the tone within their annual reports. Practical implications This study provides significant insights into the ongoing dialogue surrounding ESG-related equity incentives, which incentivize managerial manipulation of stock prices through the use of abnormal positive tone. The findings call upon investors to exercise greater vigilance in examining narrative information in annual reports, as abnormally positive tones may not always faithfully represent performance but rather reflect managerial self-interest. Social implications There is an emphasis on the importance of robust oversight mechanisms within corporate governance bodies to curb the manipulation of tone for managers’ personal gain. Originality/value This study enhances the theoretical foundation of ESG studies, offering a holistic perspective on the intricate interplay among ESG performance, managerial behavior and financial markets, with potential implications for researchers, investors and regulators.

The Influence of Business Ethics and Diversity on ESG Disclosure: Empirical Evidence from Indonesian Firms

This study examines the impact of corporate governance mechanisms, board characteristics, and ethical leadership on Environmental, Social, and Governance (ESG) performance in Indonesian companies. The analysis investigates how board ethics, independence, tenure, ownership structure, and other governance factors influence ESG scores. The findings reveal that board ethics and independence significantly improve ESG performance, supporting the role of ethical leadership and resource dependence theory in shaping corporate sustainability. Additionally, the study highlights the role of institutional ownership in driving ESG outcomes, particularly in emerging markets. Cultural factors, such as board culture, also contribute to the variability in ESG performance, suggesting the importance of aligning corporate governance practices with local values and global sustainability standards. The results have important theoretical implications, extending corporate governance theories to the context of developing economies. Practically, the findings provide insights for policymakers, corporate leaders, and investors to enhance ESG performance through effective governance reforms and ethical leadership. This study offers a significant contribution to the growing literature on ESG in emerging markets and provides a foundation for future research on corporate sustainability in different institutional settings.

The double-edged sword of transparency: ESG disclosure's effect on competitive dynamics in manufacturing

This study explores the role and impact of Environmental, Social, and Governance (ESG) information on investor decision-making, focusing on the lack of standardized ESG reporting among companies. Although ESG disclosures can enhance a company’s legitimacy and attract investor interest, the voluntary nature of reporting has led to inconsistent practices and limited information quality. The research aims to develop a standardized ESG reporting model that meets investor needs while assessing the effects of ESG performance on corporate outcomes. Using a mixed-methods approach, the study combines qualitative research to formulate an ESG reporting model and quantitative methods to evaluate its impact on company performance. Data were collected from 167 manufacturing companies in Indonesia, selected based on their consistent publication of sustainability reports over four consecutive years. The findings reveal that ESG shows consistent high significance across all three models (Sig = 0.000 for Model-1, Model-2, and Model-3 regression). This uniform high significance underscores the growing importance of ESG factors in various aspects of corporate performance and perception. It suggests that ESG considerations are integral not only to stock returns and firm valuation but also to a company's competitive positioning. The study concludes that while ESG reporting is essential for corporate transparency, it may not always align with positive financial outcomes. This suggests the need for more comprehensive ESG frameworks to balance investor expectations and corporate performance.

Do Corporate Cash Holdings Matter for ESG Performance? Empirical Evidence from India

Do Corporate Cash Holdings Matter for ESG Performance? Empirical Evidence from India

The relationship between sustainability and financial performance of South African companies

Orientation: Environmental, social and governance (ESG) performance remains crucial information required by stakeholders as they are interested in monitoring whether companies contribute to sustainability or not.Research purpose: The study’s purpose was to determine how the sample companies scored on the three pillars of ESG performance and to determine the relationship between ESG scores and the financial performance of selected South African listed companies, with special reference to the impact of coronavirus disease 2019 (COVID-19) on that relationship.Motivation for the study: Because of crises such as the COVID-19 pandemic, companies tend to focus on their ESG-impact, resulting in them investing in sustainable operations.Research approach/design and method: Linear mixed-effect regression analysis models were developed to determine the relationship between ESG scores and financial performance. The sample consisted of 104 companies listed on the Johannesburg Stock Exchange (JSE) from 2017 to 2022.Main findings: We found that companies do not equitably score on the ESG performance pillars. We also found the following significant relationships: (1) Return on equity (ROE) positively impacts governance performance, (2) ESG positively impacts Tobin’s Q and (3) governance performance positively impacts ROE. Furthermore, the results show that sustainability and financial performance before and after COVID-19 are mainly not meaningful.Practical/managerial implications: New insights are revealed in the interests of shareholders, potential investors and company management regarding how to interpret the relationship between ESG pillars and financial ratios.Contribution/value-add: We contribute to the theory as a conceptual framework was developed to interpret the results within the shareholder’s theory.

The Impact of the National Civilized City Program on the Environmental, Social and Governance Performance of Enterprises: Evidence from China

The National Civilized City Program is an important governance championship for cities in China. Taking the National Civilized City Program as a quasi-natural experiment, based on the data of A-share listed companies in Shanghai and Shenzhen from 2009 to 2021, the multi-period double-difference method is used to investigate the impact, mechanism of action and heterogeneity of the National Civilized City Program on corporate ESG performance. It is found that the National Civilized City Program can significantly enhance corporate ESG performance, and this conclusion still holds after a series of robustness tests. The National Civilized City Program improves corporate ESG performance through two channels: strengthening environmental regulation and promoting the fulfillment of corporate responsibility towards employees. There is significant heterogeneity in terms of geography, firm ownership and pollution attributes in the impact of the National Civilized City Program on firms’ ESG performance.

The Impact of ESG Performance on the Financial Performance of Chinese High-Tech and Internet Industry Firms

This study aims to explore the impact of Environmental, Social, and Governance (ESG) performance on the financial performance of firms in China’s high-tech and internet industries. Using annual data from 100 companies spanning from 2015 to 2022, a fixed effects model is applied for empirical analysis. The study finds that overall ESG performance has a significant positive impact on firms' return on assets (ROA) and net profit margin (NPM), with the governance (G) and social (S) dimensions showing particularly strong effects. While the environmental (E) dimension has a weaker short-term impact on financial performance, its long-term benefits are undeniable. Firm size and market share also have significant positive effects on financial performance. The results suggest that optimizing governance structures and actively fulfilling social responsibilities can enhance financial performance, while long-term investments in environmental responsibility should be integrated into corporate strategies. Overall, the findings provide empirical evidence for companies in formulating ESG strategies and offer specific policy recommendations for the sustainable development of China’s high-tech and internet industries.

ESG performance variability: profitability and market implications for real estate entities in a worldwide context

PurposeThe central aim of this study is to examine the relationship between ESG metrics and financial outcomes in the real estate industry, honing in on particular sectors and geographical areas. Utilizing ESG ratings and pillar scores as indicators of sustainability performance, this research endeavors to discern their effects on measures of profitability and market performance.Design/methodology/approachDrawing on a dataset encompassing more than 200 publicly listed companies in the real estate sector, this research utilizes a fixed effects regression model and instrumental variables to scrutinize the data. This approach enables a thorough evaluation of how governance, environmental and social dimensions influence the financial and market outcomes of these entities.FindingsThe research reveals a complex relationship between ESG factors and financial performance, defying any simplistic, universal application. The connection is marked by diversity, deeply influenced by the unique aspects of each real estate industry segment and the particularities of regional markets. Specifically, the environmental aspect often corresponds with an increase in ROA, yet this pattern is not consistent throughout all cases. On the other hand, the social aspect is frequently associated with diminished performance indicators, while the influence of governance factors varies, affecting financial outcomes less predictably.Originality/valueWith its pioneering methodology, the research delves into the granular impacts of ESG factors within individual real estate sectors and specific countries. Insights into the Real Estate Rental, Development and Operations sector as well as firms operating in Oceania, extend the conversation in an area of ESG literature that has been relatively uncharted. Moreover, the study’s illumination of how environmental, social and governance elements distinctly influence financial results injects fresh viewpoints into the ongoing dialogue on sustainable business practices.

Exploring the Multi-Dimensional Effects of ESG on Corporate Valuation: Insights into Investor Expectations, Risk Mitigation, and Long-Term Value Creation

This paper investigates the multifaceted mechanisms through which Environmental, Social, and Governance (ESG) factors influence corporate value. ESG performance, reflecting a company's adherence to sustainable practices, has become increasingly significant in contemporary business strategy due to its potential impact on firm profitability and market perception. While ESG initiatives are known to enhance corporate transparency and stakeholder trust, contributing positively to a companys reputation and operational efficiencies, they also present financial challenges by potentially elevating operational costs and impacting short-term financial performance. Utilizing a comprehensive review of existing literature and theoretical frameworks such as stakeholder theory, agency theory, and signaling theory, this study delineates the balance firms must achieve between fostering long-term strategic advantages and managing immediate financial implications. By analyzing empirical evidence and case studies across diverse industries, the paper elucidates how robust ESG practices can attract better investment, improve risk management, and secure sustained economic benefits. This research contributes to academic discussions on ESGs role in corporate value creation and offers practical insights for companies aiming to integrate these practices into their core strategies effectively. The findings highlight the importance of strategic ESG implementation and the necessity for firms to align these initiatives with broader corporate objectives to optimize both societal impact and shareholder value.

A Study on the Relationship Between Corporate ESG Performance and Overall Corporate Performance: An Analysis of the Mediating Effect of Information Transparency

This paper aims to explore the impact of ESG (Environmental, Social, and Governance) information transparency on corporate performance, with a particular focus on its mediating effect in corporate governance and the fulfillment of social responsibilities. Through an in-depth analysis, this study seeks to reveal how ESG information transparency enhances corporate governance and social responsibility, ultimately influencing financial performance and market value. A quantitative research approach is adopted, selecting several listed companies as samples and collecting their ESG reports and financial data. By constructing a model, the relationships between ESG information transparency, corporate governance, social responsibility fulfillment, and overall corporate performance are analyzed. Data sources include corporate annual reports, ESG reports, and relevant databases. Path analysis and mediation effect tests are employed to ensure the reliability and validity of the research results. This study not only examines the mediating effect of ESG information transparency on corporate performance but also delves into the moderating roles of corporate governance and social responsibility fulfillment. The findings provide essential theoretical support for companies formulating ESG strategies and offer substantial references for policymakers and investors.

The impact of introducing strategic investors on corporate ESG performance—Empirical evidence from private placements in China

Based on the data of A-share listed companies from 2009 to 2019, this paper explores the impact of introducing strategic investors on corporate ESG performance using the DID method. The results show that the introduction of strategic investors can enhance corporate ESG performance; two impact mechanisms involving internal governance and financing constraints are verified. The effect of introducing strategic investors on corporate ESG performance is more obvious in private enterprises and firms with better equity checks and balances. In addition, corporate ESG performance has an enhancing effect on corporate stock returns, the introduction of strategic investors can deepen this effect.

Green M&A dilemma: Unravelling the impact on high polluting enterprises’ performance

This paper investigates the impact of green mergers and acquisitions (M&As) on shareholder value within High Polluting Enterprises (HPEs). Analyzing 1,840 M&A transactions involving listed HPEs in China from 2012 to 2020, our study reveals a substantial decline in HPEs' performance post-green M&As. This effect is particularly pronounced among non-state-controlled HPEs, those with fewer financial constraints, and those with lower ESG performance. Additionally, channel analysis indicates that HPEs witness poorer post-green M&As performance when making higher cash payments or offering a premium. Overall, our findings suggest that HPEs may prioritize environmental goals in green M&As, potentially compromising shareholder value.

Risk management and corporate ESG performance: The mediating effect of financial performance

This study utilizes a sample of A-share manufacturing companies listed in China from 2012 to 2022 to explore the intricate interplay between systemic risk, financial performance, and ESG (Environmental, Social, and Governance) performance. The findings reveal that a decrease in systemic risk positively influences corporate ESG performance with a notable lag of 1–2 periods, with financial performance serving as a pivotal mediator in this dynamic. However, within the heavy pollution industry, the enhancement of ESG performance through systemic risk reduction is observed to be comparatively muted.

How are firms motivated to greenly innovate under the pressure of ESG performance? Evidence from Chinese listed firms

The impact of environmental, social, and governance (ESG) performance gaps on firm green innovation is examined in this paper by a panel database of A-share Chinese listed companies from 2011 to 2021. Using multiple linear regression and conducting a series of endogeneity tests and robustness checks, our empirical analysis shows that firm ESG performance gaps have significantly positive effect on green innovation. Both ESG performance below historical aspiration and social aspiration levels enhance a firm’s green innovation. Confucian culture negatively moderates the positive relationship between ESG performance gaps and green innovation, suggesting that firms more influenced by Confucian culture exhibit reduced green innovation than those less influenced. Additionally, firm digitalization positively moderates the positive relationship between ESG performance gaps and green innovation, indicating that firms with higher levels of digitalization are better equipped to improve green innovation when facing ESG performance shortfalls. This study extends the existing knowledge of firm ESG performance and motivation of green innovation. The research findings offer practical insights for leveraging the motivation and capabilities of green innovation to attain firm ESG objectives.

Executive green cognition and corporate ESG performance

This paper examines how executive green cognition influences corporate ESG performance using data from Chinese listed companies. The results indicate that higher level of executive green cognition substantially enhance ESG performance. Specially, this paper finds that this positive impact is achieved through advancements in green innovation and improvements in the quality of environmental information disclosure. Additionally, heterogeneity analysis reveals that the benefits of executive green cognition on ESG performance are more significant in industries with lower competition and among non-state-owned enterprises. This paper introduces a novel perspective on enhancing ESG performance, offering valuable insights for promoting sustainable development within enterprises.

The Impact of Corporate ESG Performance on Earnings Management

This paper selects listed companies from the Shanghai and Shenzhen A-share markets between 2009 and 2020 as the sample to empirically analyze the impact of corporate performance in ESG (Environmental, Social, and Governance) on the level of their earnings management activities. The study finds that the better the ESG performance, the lower the company's tendency to engage in real earnings management, significantly reducing the level of real earnings management. In contrast, the improvement in ESG performance increases accrual-based earnings management. Further analysis reveals that for non-state-owned enterprises, the restraining effect of ESG performance is more pronounced. All three dimensionsenvironment, social, and governancecan significantly increase corporate accrual-based earnings management. Compared to environmental responsibility, social responsibility and corporate governance are more effective in significantly reducing real earnings management.