Share:


Does environmental, social and governance performance influence economic performance?

    Kemal Cek   Affiliation
    ; Serife Eyupoglu   Affiliation

Abstract

The purpose of this paper is to evaluate the influence of environmental, social and governance performance on the economic performance of the Standard & Poor’s 500 companies. Structural equation modeling and linear regression have been utilized to measure the overall and individual influence of environmental, social and governance (ESG) performance on economic performance using longitudinal data comprising the years from 2010 to 2015. The overall ESG model had a significant relationship on economic performance. Furthermore, the findings of this study show that social and governance performance significantly affects economic performance in all regression models. However, environmental performance failed to show a significant relationship. The research contributes to the literature by providing insights for investors, managers and employees about the influence of ESG performance on company performance.

Keyword : corporate social responsibility, economic performance, environmental performance, governance performance, social performance, structural equation modelling

How to Cite
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
Published in Issue
Jun 11, 2020
Abstract Views
8090
PDF Downloads
5746
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

Adams, C. A., & Frost, G. R. (2008). Integrating sustainability reporting into management practices. Accounting Forum, 32(4), 288–302. https://doi.org/10.1016/j.accfor.2008.05.002

Allegrini, M., & Greco, G. (2013). Corporate boards, audit committees and voluntary disclosure: Evidence from Italian listed companies. Journal of Management & Governance, 17(1), 187–216. https://doi.org/10.1007/s10997-011-9168-3

Allouche, J., & Laroche, P. (2005). A Meta-analytical investigation of the relationship between corporate social and financial performance [Post-Print]. https://econpapers.repec.org/paper/haljournl/hal00923906.htm

Al-Najjar, B., & Anfimiadou, A. (2011). Environmental policies and firm value. Business Strategy and the Environment, 21(1), 49–59. https://doi.org/10.1002/bse.713

Ambec, S., & Lanoie, P. (2008). Does it pay to be green? A systematic overview. Academy of Management Perspectives, 22(4), 45–62. https://doi.org/10.5465/amp.2008.35590353

Amel-Zadeh, A., & Serafeim, G. (2018). Why and how investors use ESG information: Evidence from a global survey. Financial Analysts Journal, 74(3), 87–103. https://doi.org/10.2469/faj.v74.n3.2

Atan, R., Alam, M. M., Said, J., & Zamri, M. (2018). The impacts of environmental, social, and governance factors on firm performance: Panel study of Malaysian companies. Management of Environmental Quality: An International Journal, 29(2), 182–194. https://doi.org/10.1108/MEQ-03-2017-0033

Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of Business Ethics, 97(1), 71–86. https://doi.org/10.1007/s10551-010-0496-z

Barnett, M. L. (2007). Stakeholder influence capacity and the variability of financial returns to corporate social responsibility. The Academy of Management Review, 32(3), 794–816. https://doi.org/10.2307/20159336

Bassen, A., & Kovacs, A. M. M. (2008). Environmental, social and governance key performance indicators from a capital market perspective (SSRN Scholarly Paper No. ID 1307091). Social Science Research Network, Rochester, NY. https://papers.ssrn.com/abstract=1307091

Baumgartner, R. J. (2014). Managing corporate sustainability and CSR: A conceptual framework combining values, strategies and instruments contributing to sustainable development. Corporate Social Responsibility and Environmental Management, 21(5), 258–271. https://doi.org/10.1002/csr.1336

Berman, S. L., Wicks, A. C., Kotha, S., & Jones, T. M. (1999). Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance. The Academy of Management Journal, 42(5), 488–506. https://doi.org/10.2307/256972

Bhagat, S., & Black, B. S. (1998). The non-correlation between board independence and long-term firm performance (SSRN Scholarly Paper No. ID 133808). Social Science Research Network, Rochester, NY. https://papers.ssrn.com/abstract=133808

Bollen, K. A., & Long, J. S. (1993). Testing structural equation models. SAGE.

Brammer, S., Brooks, C., & Pavelin, S. (2009). The stock performance of America’s 100 Best Corporate Citizens. The Quarterly Review of Economics and Finance, 49(3), 1065–1080. https://doi.org/10.1016/j.qref.2009.04.001

Branco, M. C., & Rodrigues, L. L. (2007). Positioning stakeholder theory within the debate on corporate social responsibility. Electronic Journal of Business Ethics and Organization Studies, 12(1), 5–15.

Bromiley, P., & Marcus, A. (1989). The deterrent to dubious corporate behavior: Profitability, probability and safety recalls. Strategic Management Journal, 10(3), 233–250. https://doi.org/10.1002/smj.4250100304

Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1–23. https://doi.org/10.1002/smj.2131

Clarkson, M. B. E. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. The Academy of Management Review, 20(1), 92–117. https://doi.org/10.2307/258888

Darragh, R. (2011). Coming soon: California’s law on supply chain transparency. Retrieved December 21, 2018, from https://www.complianceweek.com/coming-soon-californias-law-on-supply-chaintransparency/17360.article

Dawkins, J., & Lewis, S. (2003). CSR in stakeholder expectations: And their implication for company strategy. Journal of Business Ethics, 44(2/3), 185–193. https://doi.org/10.1023/A:1023399732720

Delery, J. E., & Doty, D. H. (1996). Modes of theorizing in strategic human resource management: Tests of universalistic, contingency, and configurational performance predictions. Academy of Management Journal, 39(4), 802–835. https://doi.org/10.5465/256713

Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. The Accounting Review, 86(1), 59–100. https://doi.org/10.2308/accr.00000005

Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. The Academy of Management Review, 20(1), 65–91. https://doi.org/10.2307/258887

Driffield, N., Mahambare, V., & Pal, S. (2007). How does ownership structure affect capital structure and firm value? Recent evidence from East Asia1. Economics of Transition, 15(3), 535–573. https://doi.org/10.1111/j.1468-0351.2007.00291.x

Duque-Grisales, E., & Aguilera-Caracuel, J. (2019). Environmental, Social and Governance (ESG) scores and financial performance of multilatinas: Moderating effects of geographic international diversification and financial slack. Journal of Business Ethics. https://doi.org/10.1007/s10551-019-04177-w

Eccles, N. S., & Viviers, S. (2011). The origins and meanings of names describing investment practices that integrate a consideration of ESG issues in the academic literature. Journal of Business Ethics, 104(3), 389–402. https://doi.org/10.1007/s10551-011-0917-7

Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on organizational processes and performance. Management Science, 60(11), 2835–2857. https://doi.org/10.1287/mnsc.2014.1984

El Ghoul, S., Guedhami, O., & Kim, Y. (2017). Country-level institutions, firm value, and the role of corporate social responsibility initiatives. Journal of International Business Studies, 48(3), 360–385. https://doi.org/10.1057/jibs.2016.4

El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance, 35(9), 2388–2406. https://doi.org/10.1016/j.jbankfin.2011.02.007

Epstein, M. J., & Schnietz, K. E. (2002). Measuring the cost of environmental and labor protests to globalization: An event study of the failed 1999 Seattle WTO talks. The International Trade Journal, 16(2), 129–160. https://doi.org/10.1080/08853900252901396

Fatemi, A., Glaum, M., & Kaiser, S. (2018). ESG performance and firm value: The moderating role of disclosure. Global Finance Journal, 38(C), 45–64. https://doi.org/10.1016/j.gfj.2017.03.001

Ferrero-Ferrero, I., Fernández-Izquierdo, M. Á., & Muñoz-Torres, M. J. (2016). The effect of environmental, social and governance consistency on economic results. Sustainability, 8(10), 1005. https://doi.org/10.3390/su8101005

Fisman, R., Heal, G., & Nair, V. B. (2006). A model of corporate philanthropy (Working Paper). Wharton School, University of Pennsylvania.

Forte, A. (2013). Corporate social responsibility in the United States and Europe: How important is it? The future of corporate responsibility. International Business and Economics Journal, 12(7), 815–824. https://doi.org/10.19030/iber.v12i7.7970

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

Frooman, J. (1997). Socially irresponsible and illegal behavior and shareholder wealth: A meta-analysis of event studies. Business & Society, 36(3), 221–249. https://doi.org/10.1177/000765039703600302

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

Galema, R., Plantinga, A., & Scholtens, B. (2008). The stocks at stake: Return and risk in socially responsible investment. Journal of Banking & Finance, 32(12), 2646–2654. https://doi.org/10.1016/j.jbankfin.2008.06.002

Gallego‐Álvarez, I., García‐Sánchez, I. M., & da Silva Vieira, C. (2014). Climate change and financial performance in times of crisis. Business Strategy and the Environment, 23(6), 361–374. https://doi.org/10.1002/bse.1786

Gao, J., & Bansal, P. (2013). Instrumental and integrative logics in business sustainability. Journal of Business Ethics, 112(2), 241–255. https://doi.org/10.1007/s10551-012-1245-2

Garcia-Sanchez, I. M., Cuadrado-Ballesteros, B., & Sepulveda, C. (2014). Does media pressure moderate CSR disclosures by external directors? Management Decision, 52(6), 1014–1045. https://doi.org/10.1108/MD-09-2013-0446

García‐Sánchez, I., Prado‐Lorenzo, J., Rodríguez‐Domínguez, L., & Gallego‐Álvarez, I. (2008). Social responsibility in Spain: Practices and motivations in firms. Management Decision, 46(8), 1247–1271. https://doi.org/10.1108/00251740810901417

Gill, A. (2008). Corporate governance as social responsibility: A research agenda. Berkeley Journal of International Law, 26(2), 452. https://doi.org/10.15779/Z38MS9P

Goyal, P., Rahman, Z., & Kazmi, A. A. (2013). Corporate sustainability performance and firm performance research: Literature review and future research agenda. Management Decision. 51(2), 361–379. https://doi.org/10.1108/00251741311301867

Greening, D. W., & Turban, D. B. (2000). Corporate social performance as a competitive advantage in attracting a quality workforce. Business & Society, 39(3), 254–280. https://doi.org/10.1177/000765030003900302

Hart, S. L. (1995). A natural-resource-based view of the firm. The Academy of Management Review, 20(4), 986–1014. https://doi.org/10.2307/258963

Holder-Webb, L., Cohen, J. R., Nath, L., & Wood, D. (2009). The supply of corporate social responsibility disclosures among U.S. firms. Journal of Business Ethics, 84(4), 497–527. https://doi.org/10.1007/s10551-008-9721-4

Horváthová, E. (2010). Does environmental performance affect financial performance? A meta-analysis. Ecological Economics, 70(1), 52–59. https://doi.org/10.1016/j.ecolecon.2010.04.004

Hu, L., & Bentler, P. M. (1999). Cutoff criteria for fit indexes in covariance structure analysis: Conventional criteria versus new alternatives. Structural Equation Modeling: A Multidisciplinary Journal, 6(1), 1–55. https://doi.org/10.1080/10705519909540118

Klettner, A., Clarke, T., & Boersma, M. (2014). The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), 145–165. https://doi.org/10.1007/s10551-013-1750-y

Lambooy, T. (2010). Institutionalisation of corporate social responsibility in the corporate governance code: The new trend of the Dutch model. In Reframing corporate social responsibility: lessons from the global financial crisis (Vol. 1, pp. 145–179). Emerald Group Publishing Limited. https://doi.org/10.1108/S2043-9059(2010)0000001013

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

Li, Q., & Green, W. (2011). Evidence of an expectation gap for greenhouse gas emissions assurance. Accounting, Auditing & Accountability Journal, 25(1), 146–173. https://doi.org/10.1108/09513571211191789

Li, Y., & Yang, H. I. H. (2012). Disclosure and cost of equity capital: An analysis at the market level. Research Collection School of Accountancy, 1–54. https://doi.org/10.2139/ssrn.1965663

Li, Y., Gong, M., Zhang, X.-Y., & Koh, L. (2018). The impact of environmental, social, and governance disclosure on firm value: The role of CEO power. The British Accounting Review, 50(1), 60–75. https://doi.org/10.1016/j.bar.2017.09.007

Limkriangkrai, M., Koh, S., & Durand, R. B. (2017). Environmental, Social, and Governance (ESG) profiles, stock returns, and financial policy: Australian evidence. International Review of Finance, 17(3), 461–471. https://doi.org/10.1111/irfi.12101

Lo, K. Y., & Kwan, C. L. (2017). The effect of environmental, social, governance and sustainability initiatives on stock value – Examining market response to initiatives undertaken by listed companies. Corporate Social Responsibility and Environmental Management, 24(6), 606–619. https://doi.org/10.1002/csr.1431

Malcolm, S., Khadijah, Y., & Ahmad Marzuki, A. (2007). Environmental disclosure and performance reporting in Malaysia. Asian Review of Accounting, 15(2), 185–199. https://doi.org/10.1108/13217340710823387

Margolis, J. D., & Walsh, J. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative Science Quarterly, 48(2), 268–305. https://doi.org/10.2307/3556659

Mervelskemper, L., & Streit, D. (2017). Enhancing market valuation of ESG performance: Is integrated reporting keeping its promise? Business Strategy and the Environment, 26(4), 536–549. https://doi.org/10.1002/bse.1935

Miralles-Quirós, M. M., Miralles-Quirós, J. L., & Hernández, J. R. (2019). ESG performance and shareholder value creation in the banking industry: International differences. Sustainability, 11(5), 1404. https://doi.org/10.3390/su11051404

Mishra, S., & Suar, D. (2010). Does corporate social responsibility influence firm performance of Indian companies? Journal of Business Ethics, 95(4), 571–601. https://doi.org/10.1007/s10551-010-0441-1

Monda, B., & Giorgino, M. (2013). Corporate governance and shareholder value in listed firms: An empirical analysis in five countries (France, Italy, Japan, UK, USA) (SSRN Scholarly Paper No. ID 2227184). https://papers.ssrn.com/abstract=2227184

Muhammad, N., Scrimgeour, F., Reddy, K., & Abidin, S. (2015). The relationship between environmental performance and financial performance in periods of growth and contraction: Evidence from Australian publicly listed companies. Journal of Cleaner Production, 102, 324–332. https://doi.org/10.1016/j.jclepro.2015.04.039

Nekhili, M., Boukadhaba, A., Nagati, H., & Chtioui, T. (2019). ESG performance and market value: The moderating role of employee board representation. The International Journal of Human Resource Management, 30, 1–27. https://doi.org/10.1080/09585192.2019.1629989

Nicholson, G. J., & Kiel‐Chisholm, S. (2011). The contribution of social norms to the Global Financial Crisis: A systemic actor focused model and proposal for regulatory change (SSRN Scholarly Paper No. ID 1943978). Social Science Research Network, Rochester, NY. https://papers.ssrn.com/abstract=1943978

Nollet, J., Filis, G., & Mitrokostas, E. (2016). Corporate social responsibility and financial performance: A non-linear and disaggregated approach. Economic Modelling, 52, 400–407. https://doi.org/10.1016/j.econmod.2015.09.019

Ortas, E., Gallego‐Alvarez, I., & Etxeberria, I. Á. (2015). Financial factors influencing the quality of corporate social responsibility and environmental management disclosure: A quantile regression approach. Corporate Social Responsibility and Environmental Management, 22(6), 362–380. https://doi.org/10.1002/csr.1351

Pache, A.-C., & Santos, F. (2013). Embedded in hybrid contexts: How individuals in organizations respond to competing institutional logics. In Institutional Logics in Action, Part B (Vol. 39 Part B, pp. 3–35). Emerald Group Publishing Limited. https://doi.org/10.1108/S0733-558X(2013)0039AB014

Principles for Responsible Investment, 1. (n.d.). Integrated analysis: How investors are addressing ESG factors in fundamental equity valuation. Retrieved December 21, 2018, from https://www.unpri.org/listed-equity/integrated-analysis-how-investors-are-addressing-esg-factors-in-fundamental-equityvaluation/153.article

Revelli, C., & Viviani, J.-L. (2015). Financial performance of socially responsible investing (SRI): What have we learned? A meta-analysis (Post-Print). HAL. https://econpapers.repec.org/paper/haljournl/halshs-01141295.htm

Rhouma, A. B., Francoeur, C., & Robin, G. (2012). International corporate sustainability barometer 2012: Sustainability management in France. In Corporate sustainability in international comparison (pp. 70–93). Springer International Publishing.

Richardson, B. J. (2009). Keeping ethical investment ethical: Regulatory issues for investing for sustainability. Journal of Business Ethics, 87(4), 555–572. https://doi.org/10.1007/s10551-008-9958-y

Roberts, P. W., & Dowling, G. R. (2002). Corporate reputation and sustained superior financial performance. Strategic Management Journal, 23(12), 1077–1093. https://doi.org/10.1002/smj.274

Russo, A., & Perrini, F. (2010). Investigating stakeholder theory and social capital: CSR in large firms and SMEs. Journal of Business Ethics, 91, 207–221. https://doi.org/10.1007/s10551-009-0079-z

Russo, M. V., & Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. The Academy of Management Journal, 40(3), 534–559. https://doi.org/10.2307/257052

Schwartz, M. S., & Carroll, A. B. (2003). Corporate social responsibility: A three-domain approach. Business Ethics Quarterly, 13(4), 503–530. https://doi.org/10.5840/beq200313435

Shrivastava, P. (1995). Environmental technologies and competitive advantage. Strategic Management Journal, 16(S1), 183–200. https://doi.org/10.1002/smj.4250160923

Sila, I., & Cek, K. (2017). The impact of environmental, social and governance dimensions of corporate social responsibility on economic performance: Australian evidence. Procedia Computer Science, 120, 797–804. https://doi.org/10.1016/j.procs.2017.11.310

Soana, M.-G. (2011). The relationship between corporate social performance and corporate financial performance in the banking sector. Journal of Business Ethics, 104(1), 133–148. https://doi.org/10.1007/s10551-011-0894-x

Surroca, J., & Tribó, J. A. (2008). Managerial entrenchment and corporate social performance. Journal of Business Finance & Accounting, 35(5–6), 748–789. https://doi.org/10.1111/j.1468-5957.2008.02090.x

Surroca, J., Tribó, J. A., & Waddock, S. (2010). Corporate responsibility and financial performance: The role of intangible resources. Strategic Management Journal, 31(5), 463–490. https://doi.org/10.1002/smj.820

Taliento, M., Favino, C., & Netti, A. (2019). Impact of environmental, social, and governance information on economic performance: Evidence of a corporate “Sustainability Advantage” from Europe. Sustainability, 11(6), 1738. https://doi.org/10.3390/su11061738

Tamimi, N., & Sebastianelli, R. (2017). Transparency among S&P 500 companies: an analysis of ESG disclosure scores. Management Decision, 55(8), 1660–1680. https://doi.org/10.1108/MD-01-2017-0018

Tarmuji, I., Tarmuji, N. H., & Maelah, R. (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), 67–74. https://doi.org/10.18178/ijtef.2016.7.3.501

Tschopp, D. J. (2005), Corporate social responsibility: A comparison between the United States and the European Union. Corporate Social Responsibility and Environmental Management, 12(1), 55–59. https://doi.org/10.1002/csr.69

van Beurden, P., & Gössling, T. (2008). The worth of values – A literature review on the relation between corporate social and financial performance. Journal of Business Ethics, 82(2), 407. https://doi.org/10.1007/s10551-008-9894-x

van Duuren, E., Plantinga, A., & Scholtens, B. (2016). ESG integration and the investment management process: Fundamental investing reinvented. Journal of Business Ethics, 138(3), 525–533. https://doi.org/10.1007/s10551-015-2610-8

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

Waddock, S. A., & Graves, S. B. (1997). The corporate social performance-financial performance link. Strategic Management Journal, 18(4), 303–319. https://doi.org/10.1002/(SICI)1097-0266(199704)18:4<303::AID-SMJ869>3.0.CO;2-G

Wagner, M., & Schaltegger, S. (2004). The effect of corporate environmental strategy choice and environmental performance on competitiveness and economic performance: An empirical study of EU manufacturing. European Management Journal, 22(5), 557–572. https://doi.org/10.1016/j.emj.2004.09.013

Wagner, M., Phu, N. V., Azomahou, T., & Wehrmeyer, W. (2002). The relationship between the environmental and economic performance of firms: An empirical analysis of the European paper industry. Corporate Social Responsibility and Environmental Management, 9(3), 133–146. https://doi.org/10.1002/csr.22

Wang, H., Tong, L., Takeuchi, R., & George, G. (2016). Corporate social responsibility: An overview and new research directions: Thematic issue on corporate social responsibility. Academy of Management Journal, 59(2), 534–544. https://doi.org/10.5465/amj.2016.5001

Wang, L., Li, S., & Gao, S. (2014). Do greenhouse gas emissions affect financial performance? – An empirical examination of Australian public firms. Business Strategy and the Environment, 23(8), 505–519. https://doi.org/10.1002/bse.1790

Whooley, N. (2004). Responsible business conduct, there is nothing fluffy about CSR. Accountancy Ireland, 37(2), 74–85.

Yadav, P. L., Han, S. H., & Rho, J. J. (2016). Impact of environmental performance on firm value for sustainable investment: Evidence from large US firms. Business Strategy and the Environment, 25(6), 402–420. https://doi.org/10.1002/bse.1883

Yoon, B., Lee, J. H., & Byun, R. (2018). Does ESG performance enhance firm value? Evidence from Korea. Sustainability, 10(10), 3635. https://doi.org/10.3390/su10103635

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. https://doi.org/10.3390/su10082607