Linking ESG Disclosure to Firm Performance and Risk : An International Perspective

Authors

  •   Smita Dayal Assistant Professor, Lal Bahadur Shastri Institute of Management, 11/07 Dwarka Sector 11, New Delhi - 110 075
  •   Tarun Kumar Soni Associate Professor (Corresponding Author), FORE School of Management, Adhitam Kendra, B 18, Qutab Institutional Area, New Delhi - 110 016
  •   Ritika Aggarwal Financial Analyst, WIPRO, 480-481, Phase III, Udyog Vihar, Sector 20, Gurugram - 122 016, Haryana
  •   Roshni Hotwani Assistant Manager, Genpact, Sector 135, Noida - 201 304, Uttar Pradesh

DOI:

https://doi.org/10.17010/ijf/2024/v18i11/174641

Keywords:

environmental

, social, and governance (ESG), panel regression, firm performance, risk, developed economies, emerging economies, stakeholder theory, sustainability, Bloomberg.

JEL Classification Codes

, C23, C33, G11, G32

Paper Submission Date

, May 14, 2024, Paper sent back for Revision, July 22, Paper Acceptance Date, August 10, Paper Published Online, November 15, 2024

Abstract

Purpose : The study investigated the relationship between a company’s environmental, social, and governance (ESG) scores, performance, and risk for a cross-country sample across developed and emerging nations.

Methodology : The study employed a panel regression approach to assess the impact of a firm’s ESG score on its performance (accounting and market) and risk. The data encompassed 1,973 firms across 17 developed and 14 emerging countries, ranging over 5 regions and 11 industries.

Findings : The results revealed a non-linear relationship between ESG scores and business performance, suggesting that ESG activities initially had a negative impact and eventually had positive long-term benefits. Furthermore, the strength of this relationship differed between developed and emerging economies. It indicated regional variances in ESG performance, with Europe and the Middle Eastern countries leading the way.

Practical Implications : The study emphasized the importance of considering country, industry, and regional factors while evaluating the impact of the ESG score. Expenditures on ESG activities could have a complex and dynamic influence on company performance, with differences observed across different contexts. Stakeholders need this information to understand how the ESG practices of organizations change over time and how they may affect their financial performance and risk. This may also have financial repercussions for creditors, regulatory bodies, and investors.

Originality : To the best of our knowledge, this is the first study to examine the impact of ESG on firm performance and risk at various levels, including country, industry, and region, in both developed and emerging economies.

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Published

2024-11-15

How to Cite

Dayal, S., Soni, T. K., Aggarwal, R., & Hotwani, R. (2024). Linking ESG Disclosure to Firm Performance and Risk : An International Perspective. Indian Journal of Finance, 18(11), 36–55. https://doi.org/10.17010/ijf/2024/v18i11/174641

Issue

Volume 18, Issue 11, November 2024

Section

Articles
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