DOES ESG PERFORMANCE AFFECT THE FINANCIAL PERFORMANCE OF ENVIRONMENTALLY SENSITIVE INDUSTRIES? A COMPARISON BETWEEN EMERGING AND DEVELOPED MARKETS

Year 2021, , 135 - 136, 31.12.2021

Nasruzzaman Naeem Serkan Cankaya

https://doi.org/10.17261/Pressacademia.2021.1509

Abstract

Purpose- The study aims to investigate whether the ESG performance of corporations from environmentally sensitive industries has any
effects on their financial performance and whether the impacts of the ESG performance of environmentally sensitive corporations differ
between developed and emerging countries.
Methodology- The ESG performance scores and financial performance scores for a 10-year period have been collected from the Thomson
Reuters Eikon database and panel regression analyses have been carried out to evaluate the economic value of the ESG performance of these
corporations.
Findings- Our findings show that the overall ESG performance of environmentally sensitive corporations has a significant positive relationship
with the return on equity (ROE) and the Tobin’s Q of the corporations. In addition, the overall ESG performance of the environmentally
sensitive corporations from developed countries has positive impact on the ROE and on the Tobin’s Q whereas the ESG performance score
of the environmentally sensitive corporations from emerging countries does not have any significant effect on their corporate financial
performance. The findings also indicate that the impacts of the ESG performance of environmentally sensitive corporations on their financial
performance are stronger in developed countries than in emerging countries.
Conclusion- This study contributes to the literature by adding a better understanding of the ESG-financial performance relationship of
environmentally sensitive corporations from both developed and emerging market contexts.

Keywords

ESG performance, environmentally sensitive industry, corporate social responsibility, financial performance

References

• Alshehhi, A., Nobanee, H., & Khare, N. (2018). The impact of sustainability practices on corporate financial performance: literature trends and future research potential. Sustainability, 10(2), 494. https://doi.org/10.3390/su10020494
• Atan, R., Alam, Md. M., Said, J., & Zamri, M. (2019). the impacts of environmental, social, and governance factors on firm performance: panel study of Malaysian companies [Preprint]. SocArXiv. https://doi.org/10.31235/osf.io/ntz52
• Bhaskaran, R. K., Ting, I. W. K., Sukumaran, S. K., & Sumod, S. D. (2020). Environmental, social and governance initiatives and wealth creation for firms: An empirical examination. Managerial and Decision Economics, 41(5), 710–729. https://doi.org/10.1002/mde.3131
• Cek, K., & Eyupoglu, S. (2020). Does environmental, social and governance performance influence economic performance? Journal of Business Economics and Management, 21(4), 1165–1184. https://doi.org/10.3846/jbem.2020.12725
• Chelawat, H., & Trivedi, I. V. (2016). The business value of ESG performance: The Indian context. Asian Journal of Business Ethics, 5(1–2), 195–210. https://doi.org/10.1007/s13520-016-0064-4
• De Lucia, C., Pazienza, P., & Bartlett, M. (2020). Does good ESG lead to better financial performances by firms? Machine learning and logistic regression models of public enterprises in Europe. Sustainability, 12(13), 5317. https://doi.org/10.3390/su12135317
• Driscoll, J. C., & Kraay, A. C. (1998). Consistent covariance matrix estimation with spatially dependent panel data. Review of Economics and Statistics, 80(4), 549–560.
• Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: Aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment, 5(4), 210–233. https://doi.org/10.1080/20430795.2015.1118917
• Friedman, M. (1970). A Friedman doctrine: The social responsibility of business is to increase its profits. The New York Times Magazine, 13(1970), 32–33.
• Friedmann, M. (1962). Capitalism and freedom. Chicago/London, 111977.
• Galbreath, J. (2013). ESG in focus: The Australian evidence. Journal of Business Ethics, 118(3), 529–541. https://doi.org/10.1007/s10551-012- 1607-9
• Garcia, A. S., Mendes-Da-Silva, W., & Orsato, R. J. (2017). Sensitive industries produce better ESG performance: Evidence from emerging markets. Journal of Cleaner Production, 150, 135–147. https://doi.org/10.1016/j.jclepro.2017.02.180
• Hoechle, D. (2007). Robust standard errors for panel regressions with cross-sectional dependence. The Stata Journal: Promoting Communications on Statistics and Stata, 7(3), 281–312. https://doi.org/10.1177/1536867X0700700301
• Landi, G., & Sciarelli, M. (2019). Towards a more ethical market: The impact of ESG rating on corporate financial performance. Social Responsibility Journal, 15(1), 11–27. https://doi.org/10.1108/SRJ-11-2017-0254
• Laskar, N., Chakraborty, T. K., & Maji, S. G. (2017). Corporate sustainability performance and financial performance: empirical evidence from Japan and India. Management and Labour Studies, 42(2), 88–106. https://doi.org/10.1177/0258042X17707659
• Manrique, S., & Martí-Ballester, C.-P. (2017). Analyzing the effect of corporate environmental performance on corporate financial performance in developed and developing countries. Sustainability, 9(11), 1957. https://doi.org/10.3390/su9111957
• María Miralles-Quirós, José Miralles-Quirós, & Luis Valente Gonçalves. (2018). The value relevance of environmental, social, and governance performance: The Brazilian case. Sustainability, 10(3), 574. https://doi.org/10.3390/su10030574
• Ng, T.-H., Lye, C.-T., Chan, K.-H., Lim, Y.-Z., & Lim, Y.-S. (2020). Sustainability in Asia: The Roles of financial development in environmental, social and governance (ESG) performance. Social Indicators Research, 150(1), 17–44. https://doi.org/10.1007/s11205-020-02288-w
• Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24(3), 403–441.
• Pätäri, S., Jantunen, A., Kyläheiko, K., & Sandström, J. (2012). Does sustainable development foster value creation? Empirical evidence from the global energy industry: Does sustainable development foster energy firms’ value creation? Corporate Social Responsibility and Environmental Management, 19(6), 317–326. https://doi.org/10.1002/csr.280
• Peiro, S. A., Segarra, O. M., Mondejar, J. J., & Vargas, V. M. (2013). Influence of the environmental, social and corporate governance ratings on the economic performance of companies: An overview. Studenmund, A. H. (2014). Using econometrics a practical guide. Pearson.
• Tarmuji, I., Maelah, R., & Tarmuji, N. H. (2016). The impact of environmental, social and governance practices (ESG) on economic performance: Evidence from ESG score. International Journal of Trade, Economics and Finance, 7(3), 67-77.
• Ting, I. W. K., Azizan, N. A., Bhaskaran, R. K., & Sukumaran, S. K. (2019). corporate social performance and firm performance: comparative study among developed and emerging market firms. Sustainability, 12(1), 26. https://doi.org/10.3390/su12010026
• Velte, P. (2017). Does ESG performance have an impact on financial performance? Evidence from Germany. Journal of Global Responsibility, 8(2), 169–178. https://doi.org/10.1108/JGR-11-2016-0029
• Yoon, B., Lee, J., & Byun, R. (2018). Does ESG performance enhance firm value? Evidence from Korea. Sustainability, 10(10), 3635-3642. https://doi.org/10.3390/su10103635
• Yu, M., & Zhao, R. (2015). Sustainability and firm valuation: An international investigation. International Journal of Accounting & Information Management, 23(3), 289–307. https://doi.org/10.1108/IJAIM-07-2014-0050
• Zhao, C., Guo, Y., Yuan, J., Wu, M., Li, D., Zhou, Y., & Kang, J. (2018). ESG and corporate financial performance: Empirical evidence from China’s listed power generation companies. Sustainability, 10(8), 2607-2616.