The aim of this paper is to investigate the relationship between environmental, social, and governance controversies and firm market value. We use a unique dataset of more than 4000 firms from 58 countries during 2002–2011. Primary analysis surprisingly shows that ESG controversies are associated with greater firm value. However, when interacted with the corporate social performance score, ESG controversies are found to have no direct effect on firm value while the interaction appears to be highly and significantly positive. Building on (...) this evidence, we attempt to explore the channels through which CSP may enhance market value. Conducting sample split analysis indicates that higher CSP score has an impact on market value only for high-attention firms, those firms which are larger, perform better, located in countries with greater press freedom, more searched on the Internet, more followed by analysts, and have an improved corporate social reputation. Thus, our findings provide new insights on the role of firm visibility through which firms can profit from their CSP. (shrink)

Although legitimacy theory provides strong arguments that environmental, social and governance disclosure and performance can help mitigate firm-specific risks, this relationship has been repeatedly challenged by conceptual arguments, such as ‘transparency fallacy’ or ‘impression management’, and mixed empirical evidence. Therefore, we investigate this relationship in the revelatory case of initial public offerings, which represent the first sale of common stock to the wider public. IPOs are characterised by strong information asymmetry between firm insiders and society, while at the same time (...) suffering from uncertainty in firm legitimacy, culminating in amplified financial risks for both issuers and investors in aftermarket trading. Using data from the United States, we demonstrate that voluntary ESG disclosure reduces idiosyncratic volatility and downside tail risk and higher ESG ratings have lower associated firm-specific volatility and downside tail risk during the first year of trading in the aftermarket. We provide theoretical arguments for the relationships observed, suggesting that companies striving for ESG performance and communicating their efforts signal their compliance with sustainability-related norms, thus acquiring and upholding a societal license to operate. ESG performance and disclosure help companies build their reputation capital with investors after going public. We also report that ESG disclosure is a more consistent proxy for ex-ante uncertainty as an indicator of aftermarket risk, thereby replacing some of the more conventional measures, such as firm age, offered in the existing literature. (shrink)

This study investigates how environmental, social, and governance (ESG) performance, as well as disagreement in ESG ratings, influences the maturity mismatch between corporate investment and financing (MMIF). Our findings show that firms with higher ESG scores exhibit a lower degree of MMIF, suggesting that better ESG practices help alleviate maturity mismatches. However, inconsistencies in ESG evaluations across rating agencies reduce this beneficial effect. Further analysis indicates that disagreement among ESG ratings diminishes the ability of high ESG scores to relax financing (...) constraints, which is identified as a critical mechanism for ESG's impact on MMIF. The moderating impact of ESG disagreement is especially significant for firms in regions with less banking competition, those with greater information asymmetry, and non-state-owned enterprises. In addition, our results indicate that environmental and governance components are the main driving factors. These findings highlight the necessity of considering both ESG performance and disagreements in ESG assessments when evaluating firms' investment and financing activities. (shrink)

Heterogeneous institutional investors' shareholding preferences have been driven to change by the deepening of ESG investment philosophy. Therefore, we examine the impact of corporate ESG performance on institutional investors' shareholding preferences and its mechanism of action. We conduct mixed OLS and mediation effect tests using data on ESG responsibility scores and institutional investors' shareholding ratios of A-share listed companies in China from 2010 to 2020 as samples. We find that corporate ESG performance can significantly and robustly increase institutional investors' shareholdings; (...) the mediation effect analysis shows that overall corporate ESG performance contributes to increases in corporate book and market values, thus encouraging institutional investors to increase their shareholdings. The heterogeneity analysis shows that independent institutional investors attach more importance to corporate ESG responsibility performance, and long-term institutional investors attach more importance to corporate environmental performance; moreover, institutional investors have more significant ESG shareholding preferences for Chinese SOEs. Our study can strengthen the encouragement of institutional investors to integrate ESG investment concepts from multiple perspectives, such as research and analysis, portfolio management, risk control, and due diligence management, to design and develop targeted ESG investment tools, give full play to the role of shareholders and guide the sound development of listed companies from the perspective of investment strategy objectives. (shrink)

We investigate how conventional asset managers account for environmental, social, and governance factors in their investment process. We do so on the basis of an international survey among fund managers. We find that many conventional managers integrate responsible investing in their investment process. Furthermore, we find that ESG information in particular is being used for red flagging and to manage risk. We find that many conventional fund managers have already adopted features of responsible investing in the investment process. Furthermore, we (...) argue and show that ESG investing is highly similar to fundamental investing. We also reveal that there is a substantial difference in the ways in which U.S. and European asset managers view ESG. (shrink)

We investigate how conventional asset managers account for environmental, social, and governance factors in their investment process. We do so on the basis of an international survey among fund managers. We find that many conventional managers integrate responsible investing in their investment process. Furthermore, we find that ESG information in particular is being used for red flagging and to manage risk. We find that many conventional fund managers have already adopted features of responsible investing in the investment process. Furthermore, we (...) argue and show that ESG investing is highly similar to fundamental investing. We also reveal that there is a substantial difference in the ways in which U.S. and European asset managers view ESG. (shrink)

Addressing ESG issues has become a point of interest for investors, shareholders, and governments as a risk management concern, while for firms it has become an emerging part of competitive strategy. In this study, a database from an independent ratings agency is used to examine, longitudinally, how Australian Securities Exchange (ASX) 300 firms are responding to ESG issues. Following institutional theory predictions, ASX300 firms are improving ESG performance over the 2002–2009 timeframe. Furthermore, over this timeframe, performance on the governance dimension (...) improved at a greater rate than environmental or social performance, as predicted. Lastly, high impact industries are predicted to demonstrate overall improved ESG performance relative to medium or low impact industries over the timeframe, but this hypothesis was not confirmed. Results are discussed along with implications and future research directions. (shrink)

We draw from resource dependence and institutional theories to explore how board characteristics associated with directors’ capacities to provide resources and legitimacy (i.e., board size, the number of non-executive, interlocking, and female directors) along with regulative, normative, and cultural-cognitive institutional conditions combine to shape firm environmental, social, and governance (ESG) performance. Using a process of configurational theorizing with fuzzy set qualitative comparative analysis and data from firms in 32 countries, we identify multiple equifinal configurations that are associated with high and (...) low ESG performance. We find that high and low ESG performance have different drivers due to complementarities among the presence and absence of board characteristics. Our results also show that the effectiveness (or not) of the bundles of boards’ characteristics for ESG performance varies across institutional contexts. By leveraging these findings to construct a typology of board archetypes that lead to high and low ESG performance, we offer novel theoretical and empirical insights to scholars as well as implications for practice. (shrink)

As global concerns over environmental protection and carbon reduction intensify, firms face growing pressure to improve environmental, social, and governance (ESG) performance to maintain legitimacy. Although the ESG-performance relationship has been widely studied, prior work has focused on net effects, overlooking its resource interdependencies. Drawing on the resource-based view (RBV), this study applies qualitative comparative analysis (QCA) and constructs ESG scores using machine learning techniques. The results show that high ESG is associated with high firm performance, particularly when coupled with (...) high independent directors and R&D investment. Notably, we identify a complementary relationship between ESG and sales growth, underscoring the interdependence of financial and non-financial reputations. Pillar-level analyses underscore the predominant roles of the social and governance dimensions in influencing performance. Finally, heterogeneity analyses further demonstrate that the positive ESG-performance association occurs more in firms with superior green innovation, companies in sectors with lower market competition, and those in regions without the Carbon Emissions Trading Scheme. Our findings help reconcile previous conflicting findings and provide valuable guidance for sustainable practices. (shrink)

This study examines the volatility risk for firms that are rated high on environmental, social, and governance (ESG) dimensions in emerging markets and developed markets outside the United States and Canada. Employing the Morgan Stanley Capital International (MSCI) ESG Leader indices, this study investigates the impact of good news and bad news on the volatility risk for the highest ESG-rated firms through multivariate DCC-EGARCH modeling. This study finds that the impact of a negative news shock of size 2 standard deviations (...) is approximately 45% higher than that of a positive news shock of the same size for the case of the developed markets under interest. With respect to emerging markets, this study reports that the impact of a negative news shock of size 2 standard deviations is 41% higher than that of a positive news shock of the same size. The results provide empirical evidence in support of the hypothesis that the volatility impact of news for high ESG-rated firms in developed markets and emerging markets is larger for bad news compared to good news, and the results are robust across time. The empirical findings underline the importance of reporting-related disclosures of ESG initiatives, and provide seminal evidence of a slow response to news by high ESG-rated firms in emerging markets. (shrink)

Despite the detrimental consequences of corporate social irresponsibility (CSiR), the role of monitoring and incentive-based corporate governance (CG) mechanisms in mitigating stakeholder mismanagement has been largely neglected in the literature. At the same time, there has been growing interest in holding executives accountable for environmental, social, and governance (ESG) performance by linking their compensation to related targets. However, prior research provides scant and inconclusive evidence on the effectiveness of ESG pay in curbing CSiR. This study addresses these shortcomings and contributes (...) to the emerging CSiR/CG literature by harnessing an institution-based view on executive compensation. Specifically, it recognizes national culture as the “missing determinant” in comparative CG studies and investigates the culturally-driven boundary conditions for the relationship between ESG pay and CSiR. The hypotheses were tested on a data set of 4066 firms from 56 countries during 2010–2020. The analysis supports a negative, though modest, effect of ESG pay on CSiR. Furthermore, the study shows that this relationship varies in statistical and economic significance across cultural contexts. Particularly, incentives prove effective for firms headquartered in nations characterized by low power distance, individualism, low uncertainty avoidance, and masculinity. Conversely, in other settings, compensation linked to ESG may either lack motivational impact or even yield counterproductive outcomes. These findings have implications for both the CSiR and CG literature, as well as for practice. (shrink)

The main objective of this study is to investigate the factors driving the varying impact of ESG controversies on firm value. We focus on stakeholder expectations as a key mechanism and examine the relationship between ESG controversies and firm value in the challenging post-COVID years to explore whether stakeholders expect CSR practices from companies and the conditions under which these expectations become more pronounced. Using MSCI ESG controversy scores from a global sample of 832 companies, we perform a panel regression (...) analysis to explore this relationship. We also account for various contextual factors, including firm size, ESG performance, industry, geographic location, and the nature and severity of the issue. The findings indicate a positive direct relationship between ESG controversies and firm value during this period. However, firm size and ESG performance moderate and alter the direction of the relationship. Additional variations are observed across industry, geography, and the nature and severity of the controversies. This study contributes to the literature by examining ESG controversies during challenging times where stakeholder priorities often shift. It focuses on stakeholder expectations and applies expectancy violations theory to reveal the conditions under which stakeholder responses to ESG controversies become more salient. The results deepen our understanding of the factors leading to varying effects of ESG controversies on firm value. The study also highlights the need for managers to integrate CSR into corporate strategies and for policymakers to work towards a more harmonized regulatory framework and identify gaps in stakeholder actions to improve regulatory measures. (shrink)

This research examines how firms' environmental, social and governance (ESG) performance impacts their capacity utilisation using data from listed firms in China from 2009 to 2022. We find that firms' ESG performance significantly elevates their capacity utilisation with an inverted U-shaped relationship. All three dimensions of ESG—environmental performance, social responsibility and governance—positively affect capacity utilisation, addressing gaps in enhancing firms' capacity utilisation through ESG practices. We identify an indirect transmission channel through which firms' ESG practices influence capacity utilisation, marking a (...) pioneering discovery in our study. Using structural equation modelling (SEM), we confirm that firms' ESG practices enhance capacity utilisation by improving competitiveness and customer stickiness. Additionally, we discuss potential heterogeneity in the impact of ESG performance on capacity utilisation, considering factors such as ownership structure, industry, financial constraints and equity arrangements. Our findings provide insights for governments and companies aiming to incorporate ESG principles into their decision-making processes to enhance capacity utilisation. (shrink)

An updated excerpt from the larger paper AI Human Impact. Excerpt explains why ESG investing requires Updating for the AI economy.

This study investigates the relationship between firms' environmental, social, and governance performance on stock market performance using a global unbalanced panel of 10,043 listed global firms from 2002 to 2024. Employing firm and year-fixed effects with instrumental variable estimation, we find a robust positive association between ESG scores and subsequent market performance. The strength and direction of this relationship vary systematically across national cultures, as captured by Hofstede's dimensions. The positive effect is most pronounced in regions with strong institutional frameworks, (...) such as Europe and North America, and in cultures characterised by higher uncertainty avoidance and long-term orientation. These findings suggest that the market relevance of ESG is context dependent rather than uniform across countries. By integrating signalling and value-relevance theories with cultural and institutional moderators, this study clarifies the contextual conditions under which ESG becomes financially material, offering actionable insights for managers, investors, and policymakers. (shrink)

Despite the increasing focus on Environmental, Social, and Governance (ESG) disclosure quality, limited research has examined how inter-firm collaboration and environmental capabilities enhance ESG outcomes in African settings. To fill this gap, this study explores the mediating roles of circular economy practices and decarbonization capacity as well as the moderating effect of technological intensity in the link between inter-firm collaboration and ESG disclosure quality. Data were gathered from 370 Chinese and African companies across 10 African countries using a structured questionnaire (...) and analyzed with SEM-ANN approach. Our findings reveal that circular economy practices and firm decarbonization capacity mediate the relationship between inter-firm collaboration and firm ESG disclosure quality. Decarbonization is found to sequentially mediate this relationship through circular economy practices. Additionally, a categorical moderation reveals that high-tech firms experience stronger positive effects compared to low-tech firms. This study extends the Natural Resource-Based View (NRBV) and Legitimacy Theory within the ESG context and offers a practical insight for managers and policymakers aiming to leverage collaboration and environmental capabilities in the emerging ESG ecosystem. (shrink)

This study seeks to shed light on the effect of star CEOs on the environmental, social, and governance (ESG) performance of Chinese firms. Relying on the theoretical perspective of role identity and role constraints, we analyze data from 1222 Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges from 2006 to 2019. The results analyzed using the ordinary least squares estimate method reveal a positive effect of star CEOs' extreme confidence and legitimacy pressure mechanisms on ESG performance. We also (...) find that this positive relationship is negatively moderated by higher organizational slack but strengthened by a lower level of regional marketization, as the degree of firms' dependence on external stakeholders' resources differs significantly. Additionally, this study finds that ESG activities are less likely to be associated with firm performance if star CEOs pursue them to satisfy their need for star status. These findings supplement the early tests of the influence mechanism of star CEOs on organization-level results and expand the context discussion of role identity and role constraints theory in the Chinese institutional environment. (shrink)

Can firms operating in institutionally fragile environments successfully advance Environmental, Social, and Governance (ESG) goals? This question is particularly urgent in the context of the energy sector of Latin America and the Caribbean (LAC), a region marked by regulatory inconsistencies, sustainability pressures, and growing stakeholder scrutiny. This study addresses the research questions: (1) Does management ability influence ESG performance? (2) To what extent do technological innovation and stakeholder pressure moderate the relationship between management ability and ESG performance? Grounded in the (...) resource-based view, upper-echelon, and legitimacy theories, the study analyzed panel data from 283 energy firms across 18 LAC countries for the period 2010–2022. Methodologically, it employed common correlated effects mean group and pooled mean group estimators, alongside dynamic GMM and IV-2SLS techniques to account for potential endogeneity and ensure causal robustness. The findings revealed that management ability has a strong positive impact on ESG performance, and this effect is significantly amplified by technological innovation and stakeholder pressure. Academically, the study advances theoretical discourse and literature by integrating multiple theoretical frameworks to explain ESG performance in emerging markets, demonstrating that the synergy of internal leadership and contextual forces drives sustainability. Practically, the results offer actionable guidance for firms and policymakers. For managers, the findings demonstrated that cultivating ESG-oriented leadership skills, strategically aligning technological innovation with sustainability goals, and proactively engaging with stakeholders enhance corporate legitimacy and competitive advantage. Policy-wise, the results underscore the importance of designing regulatory frameworks, incentive mechanisms, and innovation-support policies that reinforce corporate sustainability practices. (shrink)

This paper provides an examination of some problems caused by the concentration of influence in the capital markets of developed countries. In particular, I argue that large asset managers exercise quasi-political power that is not democratically legitimate. In section two, I will examine the economic driver behind the size and power of the big asset managers: the passive investing revolution. I will discuss several respects in which this revolution has fundamentally changed capital markets, most notably by making a large share (...) of investors universal owners. In the third section, I argue for my central analytical conjecture: asset managers exercise quasi-political power. They use their influence to shape the rules of the game in public capital markets in order to implement social and environmental policies that have traditionally been the exclusive purview of states. “Asset manager capitalism” is a recent term coined to refer to the contemporary system of corporate governance that succeeded the Berle and Means corporation with its dispersed ownership; the argument of this section is that asset manager capitalism is also a new political-economic regime. In the fourth section I defend my central normative claim: asset manager capitalism is an untenable and illegitimate political-economic arrangement, for at least two reasons. First, the power of asset managers is not checked by any institutional constraints, and is not rendered legitimate by any democratic process. More fundamental than this procedural critique is an argument that the interests of asset managers could not be aligned with the public interest, given the fact that the distribution of capital is highly unequal. I conclude by discussing several proposals to reform asset manager capitalism. (shrink)

We examine the effect of coverage by ESG rating agencies on firm ESG performance. We find that, when firm ESG coverage intensifies, its toxic emissions decline and its outstanding ESG ratings improve. ESG coverage is associated with fewer government enforcement actions for environmental and social violations and higher institutional ownership, especially by institutions with revealed preferences for high-ESG stocks. We also show that more covered firms disclose more ESG information in their annual reports. The effect of coverage is enduring and (...) pronounced across both more and less competitive industries. Our results suggest that ESG rating agencies increase the amount of ESG information in the market. The source of this information could be attributed to the agencies’ expertise in evaluating ESG performance. (shrink)

Preventing corporate financial violation is crucial for safeguarding investors' interests and promoting the sustainable development of businesses. Applying social identity theory, this study investigates the relationship between environment, social, and governance (ESG) performance and corporate financial violation through the moderating effects of executive characteristics. Based on a sample of 4881 listed firms in China from 2012 to 2021, this study finds that ESG performance is significantly and negatively associated with both the likelihood and severity of corporate financial violation. Moreover, executives' (...) financial background strengthens this negative relationship, while executives' equity incentives weaken this relationship. We further find that the negative association between ESG performance and corporate financial violation is more pronounced in regions with a more developed market environment and stronger stakeholder-oriented culture. Additionally, firms with higher ESG performance experience shorter violation detection time. We contribute to the business ethics and corporate finance literature by highlighting that firms' ESG performance positively influences executives' social identification, thus reducing corporate financial violation. We also provide a new rationale for firms to develop ESG practices and curb corporate violation. (shrink)

The study investigates the effects of ESG washing on banks' reputational exposure. We define ESG washing as a disparity between a bank's environmental and social disclosure level and the practical implementation of the relative measures. The analysis involves an international sample of 120 banks operating across 35 countries from 2014 to 2020. The results evidence a different effect based on the pillar considered: the higher the inconsistency on environmental issues, the higher a bank's reputational exposure. Conversely, higher levels of disclosure (...) compared to performance on social issues appear to reduce reputational exposure. In addition, citizen movements and the country's legal system play a significant role in amplifying or mitigating a bank's reputational exposure. Our findings offer insight into the phenomenon of ESG washing in the banking industry, supporting the need for more verified information across countries and all economic sectors. (shrink)

The primary objective of this research is to examine the potential influence of environmental, social, and governance (ESG) disclosure on cash holdings. Additionally, the study explores the role of earnings management (EM) practices as a mediating factor in this relationship. The sample comprises 797 companies listed on financial markets across 19 European countries, and the data spans from 2013 to 2019. The outcomes indicate a significant negative correlation between ESG disclosure and cash holdings, implying that ESG performance can be used (...) by management to resolve disputes with stakeholders. The outcomes further indicate that the existence of EM practices partially mediates the link between ESG disclosure and cash holdings. Moreover, they are robust by substitute cash holdings specification, three distinct initiatives of ESG disclosure (i.e., environment, social, and governance), and a two-stage least squares assessment. Therefore, the findings document that nonfinancial reporting in the form of ESG disclosure can assist in controlling agency conflict, leading to better valuations of company performance by stakeholders. (shrink)

In response to stricter environmental regulations and increased stakeholder awareness, firms are increasingly focused on enhancing their ESG performance. However, limited research has explored how environmental regulation affects corporate ESG environmental performance, particularly through the mediating role of green innovation. This study addresses this gap by analyzing the influence of environmental regulation on corporate ESG performance in China, using panel data from listed firms between 2010 and 2023. Our findings reveal that: (1) stringent environmental regulations hinder ESG environmental performance; (2) (...) green innovation mediates the relationship between environmental regulation and ESG environmental performance; (3) the negative impact of regulations on ESG environmental performance is mitigated in firms with environmental management systems, yet intensified in state-owned enterprises and high-polluting industries. This research offers insights into the effects of environmental regulation on corporate practices, highlighting implications for advancing a green economy in transitional economies like China. (shrink)

ESG metrics are performance indicators, mainly of non-financial nature, designed to assess an organization’s commitment to sustainability and responsible business practices. These metrics provide valuable insights. This chapter offers a comprehensive overview of typical ESG metrics in various aspects of practical applications.Furthermore, this chapter explores the landscape of ESG ratings. The ESG ratings allow stakeholders, especially investors, to compare a company’s performance with its peers, in order to make informed investment decisions.Finally, it discusses the impact of ISO standards and certifications (...) in various industry sectors and introduces the approach to a successful certification process. (shrink)

Effective stakeholder communication is essential for overcoming the challenges of the principal-agent dilemma in complex stakeholder relationships, enhancing management accountability and active stakeholder engagement. Therefore, transparency of ESG reporting is pivotal for conveying an organization’s ESG performance and dedication to the public.With the globalization of business activities, ESG reporting gains significance as cross-border operations engage with culturally diverse markets. Amid varying regulatory frameworks and societal expectations in different countries, comprehensive and standardized ESG reporting procedures are crucial for transparent and cost-efficient (...) stakeholder communication.This chapter delves into the European Union’s ESG legal requirements on ESG reporting by means of the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy, alongside the introduction of some most influential ESG reporting standards in industrial practices. (shrink)

ESG frameworks and standards provide a structured approach to ESG reporting. They offer guidelines for organizations to evaluate their ESG-related practices and disclose the associated business risks and opportunities. By utilizing these frameworks and standards, businesses can prioritize consistency, comparability, and reliability in their ESG disclosures, which can lower the risk profile and enable enhanced regulatory compliance.

ESG is a framework used to assess a company’s business practices, operations, and performance on a variety of interconnected environmental, social, and corporate governance factors that have the potential to impact the company’s ability to execute business strategy and to create long-term value.

Drawing from corporate behaviour theory and institutional theory, this article delves into the influence of the performance expectation shortfall on ESG performance through the lenses of environmental regulation and media attention. Employing a comprehensive dataset from Chinese publicly traded companies from 2013 to 2022, the article yields several notable conclusions: (1) It identifies an inverted U-shaped relationship between performance expectation shortfall and ESG performance; (2) Environmental regulation acts to smooth the inverted U-shaped curve, indicating a positive moderating effect and (3) (...) Media attention not only flattens the curve but also shifts the inflection point rightward, indicating a positive moderating effect. Through an application of corporate behaviour theory, this article fills in the gaps in the dynamic analysis of how performance expectation deficiency affects ESG performance. It also identifies the crucial influencing factors from the perspective of institutional theory. It enriches the contextual mechanisms of performance feedback studies, offering practical insights and enlightenment on the ESG issues of companies within the context of harmonious development between humans and nature in China. (shrink)

The influence of minority shareholder activism on environmental, social, and governance (ESG) greenwashing is examined in this study, and the results reveal that active voting by minority shareholders places pressure on management, thereby increasing their catering behavior in terms of ESG greenwashing. Mechanistic analysis reveals that the pressure from minority shareholder activism leads to managerial myopia, which increases ESG greenwashing. Furthermore, negative sentiment among minority shareholders amplifies management's catering behavior. The heterogeneity test indicates that a concentrated ownership structure can mitigate (...) the positive relationship between minority shareholder activism and ESG greenwashing, while the standalone release of ESG reports can exacerbate ESG greenwashing. This study provides new insights from the perspective of catering theory, offers theoretical support for understanding the impact of minority shareholder activism on ESG greenwashing and provides empirical evidence to inform policies aimed at addressing the negative effects of such activism. (shrink)

Stories about corporate social responsibility have become very frequent over the past decade, and managers can no longer ignore their impact on firm value. In this paper, we investigate the extent and the determinants of the stock market’s reaction following ordinary news related to environmental, social and governance issues—the so-called ESG factors. To that purpose, we use an original database provided by Covalence EthicalQuote. Our empirical analysis is based on about 33,000 ESG news, targeting one hundred listed companies over the (...) period 2002–2010. On average, firms facing negative events experience a drop in their market value of 0.1%, whereas companies gain nothing on average from positive announcements. We find also that market participants are responsive to the media, but they do not react to firms’ press releases or to NGOs’ disclosures. Moreover, our results indicate that sector’s reputation mitigates the loss and that cultural proximity and lexical contents of ESG disclosures play a significant role in the magnitude of the impact. (shrink)

The intersection between ESG principles (environmental, social and governanceGovernance) and Industry 4.0Industry 4.0 reflects the convergence of sustainability and technological innovation. Industry 4.0Industry 4.0 is characterized by automation, digitalization and the use of advanced technologies such as the Internet of Things (IoT), big data and artificial intelligence, and has the potential to transform production processes, making them more efficient and sustainable. The research problem was therefore central: what are the links between Industry 4.0Industry 4.0 and ESG? To answer this research (...) problem, a bibliometric review was carried out examining scientific production on the relationship between ESG and Industry 4.0Industry 4.0, with the aim of mapping the trends and challenges encountered by academics and professionals in this area. The integration between ESG and Industry 4.0Industry 4.0 is promising, since digital technologies can help optimize production processes, improve environmental and social management and increase transparencyTransparency and corporate governanceCorporate governance. However, the survey pointed out that the application of ESG principles in Industry 4.0Industry 4.0 is still at an early stage, with few studies focusing on early stages, with few studies focusing on practical implementation. It concludes that there is a growing trend towards the adoption of these practicesPractices, driven by pressure for greater sustainability and social responsibility in the industrial context. (shrink)

This study provides an in-depth examination of the relationship between environmental, social, and governance (ESG) performance and the idiosyncratic volatility of Korean companies. In line with the risk-mitigation view, the study finds that strong ESG performance is associated with a reduction in a firm's idiosyncratic volatility. The impact of ESG performance on reducing firm volatility was particularly evident during the COVID-19 pandemic, highlighting the role of ESG performance in risk mitigation during crisis periods. The study also shows that companies with (...) strong ESG performance in industries that are highly sensitive to ESG factors are particularly adept at reducing idiosyncratic volatility. These findings underscore the importance of ESG enhancement for both firm managers and policymakers, particularly within ESG-sensitive industries. (shrink)

Drawing on China's policy practices under the “dual carbon” goal, this study examines how green procurement (GP), a demand-side policy, and green subsidies (GS), a supply-side policy, jointly affect corporate ESG performance. Using panel data of A-share listed industrial firms from 2015 to 2022 and a two-way fixed effects model, the findings show: (1) the GP–GS policy mix significantly enhances ESG performance through complementary “market-locking” and “resource-matching” effects; (2) mechanism analysis identifies three channels—greater information transparency, stronger market competition, and higher (...) green innovation; and (3) heterogeneity tests reveal stronger impacts among heavily polluting firms and in regions with robust institutional environments. By moving beyond single-policy analyses, this study provides evidence on the synergistic optimization of demand- and supply-side environmental policies and offers micro-level insights to refine China's green governance toolkit and strengthen ESG drivers. (shrink)

To develop a successful ESG policy, it is crucial to understand the needs and concerns of all relevant stakeholders. This chapter depicts the role of stakeholders in modern business processes. The decisions and actions taken by the company can have far-reaching consequences that are not confined to financial impacts, affecting various stakeholders and the broader society. By acknowledging and addressing the interests of the key stakeholder groups, companies can create value, contribute to society and achieve in turn long-term economic success.The (...) chapter begins with an introduction of the concept of stakeholder, followed by the evolution of stakeholder theory, and sheds light on the role of stakeholders in the sustainable success of business undertakings. Furthermore, it presents a practical framework for stakeholder relationship management as an integral component of ESG management, including identifying, prioritizing, mapping and engaging major stakeholder groups, as well as possibilities for monitoring ESG stakeholder relationships. The visualization of stakeholders with the Stakeholder Circle approach further facilitates the understanding of stakeholder characteristics and the planning of stakeholder engagement in practice. (shrink)

This study investigates crisis-period environmental, social, and governance (ESG) disclosure research by examining how ESG disclosure protects firm value during major global public crises. The pandemic is a severe exogenous shock generating synchronized global uncertainty. Using panel data regression analysis of U.S. public firms, we find that superior ESG disclosure significantly enhances firm value during systemic crisis. This protective impact is amplified in companies that have a greater proportion of long-term institutional ownership, confirming investor time horizons as critical moderators. In (...) addition, economic policy uncertainty (EPU) systematically dampens ESG disclosure's value-protective capacity through resource constraints and market sentiment channels. These results reconceptualize ESG disclosure as a conditional strategic asset whose efficacy depends on institutional investor composition and macroeconomic uncertainty levels. This study advances ESG literature by demonstrating that the value-protective role of ESG disclosure during crisis is intensified by long-term institutional ownership, while EPU serves as a catalyst for reversing the insurance effects of ESG disclosure. Our work pioneers invest in temporal heterogeneity and EPU as critical boundary conditions. The findings challenge generalized ESG benefit assumptions while offering actionable guidance for embedding ESG disclosure within crisis resilience frameworks. (shrink)

Over the past decade, sustainable finance has been a topic of burgeoning significance for investors, and ESG ratings have become commonly used to implement ESG investment strategies in practice. Strikingly, it is widely documented in both academic literature and investment practices that ESG ratings of a given firm can be extremely different across rating providers. However, despite the disagreement in ESG ratings being subject to a lot of criticism, only few studies have examined the sources and determinants of rating divergence. (...) This study examines whether quantitative ESG disclosure is conducive to rating convergence among agencies. Based on ESG rating data of Chinese A-share listed companies, the author finds that greater quantitative ESG disclosure, especially disclosure on environmental and social pillars, results in greater divergence of ESG ratings. When employing a difference-in-differences design with a quasi-experiment of disclosure guidance introduced by Hong Kong Exchange, the results show that if ESG disclosure is standardized and comparable, more numerical information reduces agencies' rating disagreement instead. Further analyses show that the lack of agreement is related to a low rating in the future. The author also finds that the effect of quantified ESG disclosure on rating divergence is more pronounced when firms are single businesses rather than diversified businesses with poor ESG performance rather than good ESG performance. The results are robust to alternative measures of ESG rating divergence, alternative sample, two-way clustering, and additional control variables. Taken together, the results indicate that quantitative ESG disclosure degenerates rating disagreement. (shrink)

Using a sample of US stocks over the period 1991–2019, we test whether stocks with high exposure to a social index exhibit high returns. Using a univariate analysis, our in‐sample results show that stocks with high sensitivities to the MSCI KLD 400 Social Index underperform stocks with low sensitivities by an annual risk‐adjusted performance of 7.02%. The negative premium is also larger in the post‐crisis period of 2007–2019 and is equal to 10.25%. The out‐of‐sample results offer, however, only weak evidence (...) of such a finding, with a risk‐adjusted performance difference of merely −0.84% over the full sample period and no significant differences between the pre‐crisis and post‐crisis periods. In the multivariate regression, we find evidence of a negative relationship between exposure to the social index and stock performance. Moreover, we find that stocks with high exposure to the social index display a low corporate social responsibility score, a high Tobin’s Q, high long‐term debt, a large size, high total risk, a high market beta, a high SMB coefficient, a low HML coefficient, and a small MOM coefficient. (shrink)

Lapses in environmental, social, and governance (ESG) conduct often manifest through controversies like environmental violations, social misconduct, or governance failures, creating reputational and informational risks for firms and their auditors. While many studies focus on how ESG performance influences audit and assurance outcomes, few examine how adverse ESG events, particularly controversies, shape auditor behavior and market pricing. This study examines whether such controversies affect non-audit services (NAS) pricing and explores how auditors incorporate ESG-related reputational risks into advisory engagements. Drawing on (...) a panel of 4,552 firm-year observations from European listed firms between 2014 and 2023, ESG controversy data from Refinitiv Eikon are analyzed with two-way fixed-effects and instrumental variable (IV) estimations. The findings suggest that ESG controversies and NAS fees are positive and significantly correlated only for severe controversies, indicating that auditors selectively respond to material ethical risks. Supplementary analyses indicate that, in Europe, this relationship is not systematically conditioned by cross-country institutional strength or firm-level governance characteristics, suggesting their limited moderating role. The IV analysis reveals a weak instrumental relationship, implying the observed associations may partially reflect correlated omitted factors rather than definitive causal effects. Overall, the findings suggest ESG controversies have economic repercussions for firms through advisory cost adjustments, particularly when reputational risk is salient. The study enhances understanding of how auditors price ethical and reputational risks, contributing to ongoing debates regarding auditor independence, ESG accountability, and corporate ethics in assurance markets, while offering insights for regulators, managers, and auditors regarding pricing of ESG-related advisory risk. (shrink)

This study examines the relationship between ESG news sentiment and corporate performance through the lens of stakeholder theory. While ESG ratings face significant limitations, including measurement inconsistencies and time lags, news sentiment analysis offers insights into internal and external stakeholder responses to ESG activities. Using news articles for Korean listed companies, we investigate ESG news sentiment across different dimensions and topics defined by the sustainability accounting standards board (SASB) while considering industry context. The results reveal a positive relationship between overall (...) ESG news sentiment and corporate performance. In the dimensional analysis, social and governance news sentiment demonstrate significant positive effects, while environmental sentiment shows no significant association. Analysis of SASB-defined topics reveals that certain issues have stronger associations with performance, with effects varying across industries. Our findings contribute to addressing a research gap in sustainable finance literature by revealing how stakeholder responses vary across different ESG dimensions and material topics, while providing practical implications for corporate strategy, investment decisions, and policymaking. (shrink)

B a c k g r o u n d. Kant's question "What should I do?" in the era of global crises requires an expansion to "What should we do?"Anthropocentric ethics, centered on humanity as the measure of all things, reveals its limitations in the face of environmental and social challenges. The response to these challenges lies in the transition to shared responsibility, embodied in Environmental, Social, and Governance (ESG) standards, referred to here as Environmental, Social, and Governance (ESU) standards. (...) Unlike voluntary Corporate Social Responsibility (CSR), ESG introduces mandatory mechanisms to minimize business impact on the environment. As Ukraine integrates into the European Union, the need to align with ethical economic standards becomes increasingly significant. The goal of the article is to examine the potential of ESG as a contemporary alternative to classical CSR, encompassing a new level of interaction between environmental, social, and governance factors in corporate practice. M e t h o d s. The study is based on hermeneutic and historical methods, enabling the tracing of ESG's ideological evolution. A key empirical component is a case study of the Ukrainian agribusiness company Kernel. Using ESG reports, public communications, and the company's participation in COP29, the analysis demonstrates how modern value-based guidelines of responsibility are implemented in practical corporate contexts. R e s u l t s. The analysis shows that ESG is not merely a corporate regulatory tool but also a potential example of forming new value orientations in response to the growing need for a deeper sense of responsibility, including in economic activity. Expanding responsibility to include ecosystems and future generations requires not only ethical models but also normative standards in the interaction between humans and nature. In the context of the war in Ukraine, ESG takes on additional meaning as a tool for ecological and economic recovery. The Kernel case illustrates how ESG principles can move beyond formal declarations to be systematically realized through practical management decisions, integrating economic efficiency with the values of sustainable development. C o n c l u s i o n s. The implementation of ESG facilitates a shift from the classical paradigm of anthropocentrism toward new approaches to responsibility in which nature is recognized as a subject with intrinsic value. ESG represents: 1) a potentially productive modification of responsibility; 3) an important element of the European integration framework, and 3) a regulator of "rational self-limitation."At the same time, further research is necessary to analyze challenges, particularly the risks of greenwashing, the absence of unified standards, and the potential transformation of ESG into a formal mechanism without real impact on a sustainable future. (shrink)

Moving to a circular economy is increasingly mainstream, even mandatory in many countries. The impacts of climate change and the transition to a green economy are creating emerging risks and opportunities for businesses. ESG serves as a framework helping stakeholders understand how an organization manages risks and opportunities tied to these criteria. ESG can enhance corporate governance by improving transparency and accountability of the board and management to the shareholders and other stakeholders; aligning the long-term interests of the company with (...) the broader societal goals of environmental protection, social justice, and ethical conduct; improving the reputation and brand value of the company; reducing the legal, regulatory, and reputational risks associated with environmental and social issues; and increasing the innovation and competitiveness of the company in a changing market environment. Numerous studies demonstrate a positive relationship between ESG performance and economic and financial performance. This chapter starts by highlighting risks and opportunities for business in the context of transitioning to a green economy. Then, it analyzes how ESG factors can address corporate governance shortcomings. Next, ESG ratings provide insight to investment managers, and thus ensuring the quality of ESG reports necessitates ranking businesses based on their sustainable practices. Finally, a case study on the impact of ESG on enhancing corporate governance in Vietnam is provided for illustration. (shrink)

The concept of Environmental, Social, and Governance (ESG) has gained significant traction in recent years, with an increasing number of companies voluntarily adopting ESG principles. Often due to a vacuum left by the lack of regulation, companies measure ESG impacts based on financial risks vs. the opportunities posed to their business. This approach can limit ESG’s positive effect in the real world as companies may prioritize what is easier and what benefits more their brands. Also, there is limited transparency as (...) companies do not disclose the more sensitive and controversial issues in their own operations and their value chain. However, the future of ESG is likely to be shaped by new laws and regulations that may constitute clearer Human Rights obligations to companies.Departing from academic research and business practices perspectives, this paper brings a deep and concise analysis of two approaches to incorporating mandatory Human Rights into business ESG frameworks: the recent European Commission directive on Corporate Sustainability Due Diligence and the Strategic Climate Change Litigation practices in international private law. These new regulatory developments have an imminent influence on private sector activities. (shrink)

This study investigates the effect of SRI efficiency-screening intensity on a portfolio’s performance under joint consideration of financial and ESG criteria in the analysis of the firms’ efficiencies derived from multi-directional efficiency analysis for US and European firms. Two efficiency estimation approaches relating to the choice of the set of firms are used and several usual asset allocation strategies are implemented reflecting common SRI fund and ESG index portfolios. The portfolio results indicate a significantly negative screening effect on financial performance (...) for mean-variance strategies for the USA and no significant effect for the EU. A significantly positive relationship can be documented between SRI efficiency-screening intensity and financial as well as ESG performance for naive and value-weighted asset allocation strategies. Depending on the level of transaction cost and the chosen efficiency estimation approach, either medium or high screening intensity is preferred. The results suggest that SRI efficiency-screening based on ESG is a viable approach for SRI fund management, but also indicate a potential application for conventional investors as well. (shrink)

In addition to frameworks and standards, ESG ratings are part of the ESG reporting paradigm. ESG ratings are produced by third-party research firms and credit ratings agencies (CRAs) based on proprietary methodologies. They assess a company’s ESG performance and provide scores that are used by market participants in capital allocation decisions.

Responsible investments are booming, but criticism has been growing, too. I start by outlining the different dimensions and characteristics of responsible investments. I also describe a free tool to develop bespoke, responsible investment policies that could serve as the basis to select appropriate funds.There are now many standard active and passive, so called responsible mutual funds available. I use a free fund selection tool to show that strict responsibility criteria are only used by rather few actively managed funds. I also (...) describe several conceptual limits of responsible passive funds. In summary, since responsible investments can vary pretty much by investor, most standard funds may not be ideal for investors.Much of the legitimate criticism of responsible investing can be avoided with bespoke portfolios. I outline simple ways to customize responsible portfolios with direct investments, not limited to equity investments. There are many arguments for rather concentrated direct rule-based ESG investments. These (self-indexed) solutions could be efficiently delivered by wealth managers or used by self-directed investors. An (over-)diversification focus of mutual fund providers and investment advisors may be the biggest limitation for the growth of direct or custom ESG indexing. Most of the arguments apply to private and institutional investors alike, although institutional investors will probably diversify more than private investors. (shrink)

Over the past decades, investors increasingly acknowledge the importance of environmental, social and governance (ESG) factors in evaluating a company’s financial viability over the long term. Thus, ESG issues have become a crucial element in risk management.This chapter delves into the fundamentals of risk management and introduces a practical four-step framework designed by PWC to guide ESG risk management in business practice. Furthermore, ESG processes are examined in alignment with the risk management standard ISO 31000:2018.

To develop optimal environmental, social and governance (ESG) solutions, companies should set clear strategic goals based on a holistic approach and deploy robust monitoring and reporting systems. In real-world practice, the notions of sustainability, corporate social responsibility (CSR) and Sustainable Development Goals (SDGs) have proven to be effective instruments to enhance shared values and prioritize stakeholder engagements.The following sections will provide an overview of the above key concepts that are closely related to the ESG principles and shed light on how (...) they can be implemented in a holistic ESG strategy framework. (shrink)

This book critically examines the legal and regulatory framework for environmental social governance (ESG) regulation in the South African hemisphere. It focuses on the compliance of local and international companies with ESG requirements in Southern African Development Community (SADC) countries in promoting shared values through good governance practices. The book discusses the above in a legal context, with particular attention to Southern African corporate laws and the legal and regulatory frameworks related to human rights and environmental law in SADC. The (...) book is valuable for students, practitioners, and researchers. (shrink)

The interest in sustainability and environmental, social, and governance (ESG) from stakeholders across all sectors is growing and will continue to do so as we are in the most pivotal decade for meeting the global goals on climate change and sustainable development. This book is a compendium of the international agreements, regulatory advancements, and current practicum to inform a 360-degree viewpoint of the organizations, frameworks, and stakeholders that shape the evolving landscape. Written in a straightforward and conversational tone, you’ll embark (...) on a knowledge journey on the progression of ESG and sustainability and how it directly shapes and informs current practice. It provides insights, discussion, and topical briefings as a side-by-side reader to accompany the rise of ESG and sustainability in business and the markets. The flow of information and reader education begins with the origins of sustainability in international treaties and policy. It then moves on to theadvent and differentiation of ESG, sustainability, and social responsibility; provides substantive issue briefings on the key “E,” “S,” and “G” factors. You’ll continue by walking through the global regulatory and standards paradigms; delve into ESG ratings and indices; and examine in-depth analysis of the respective roles of the corporation, the financial and investment sector, the international bodies, the business interest groups, the NGOs and third-party organizations, and the philanthropic community. You’ll also see that corporations and investors are advancing ESG and sustainability strategies and programs at a record pace. What were once regarded as “nice-to-have” initiatives with voluntary reporting have moved into the regulated sphere with mandatory public disclosures and reporting requirements on greenhouse gas emissions, climate risk and transition planning, biodiversity and nature-related impacts, supply chain transparency, anti-bribery and corruption, humanrights, human capital, and board diversity. The ESG and Sustainability Deskbook for Business threads the needle with best practices, case studies, and takeaways to illustrate the applications and to enhance understanding. What You Will Learn Study the progression of ESG and sustainability and how related considerations increasingly drive business, policy, and economic decisions Review Takeaways and best practices to provide insights and discussion points Understand the critical differences between ESG, social responsibility, and sustainability Who This Book is For ESG and Sustainability Practitioners (across all sectors), Corporate leadership, Tech sector (a key growth area for compliance, reporting, and GHG accounting), Investors, Compliance, risk, legal, and corporate governance professionals, Management and board consultants. (shrink)