The Impact of ESG Ratings on Financial Performance of the Companies: Evidence from BRICS Countries
Abstract
Non-financial factors become the relevant topic in the context of understanding the successful development of companies over the world. The purpose of this paper is to study the relationship between ESG scores and financial performance of firms operating in emerging markets, in particular BRICS countries. This study includes three financial performance indicators to cover three different perspectives: accounting measure (ROA), market performance (TSR) and economic metric (EVA spread). The ESG scores, its pillars and other financial metrics are taken from Refinitiv Eikon. The sample consists of 257 listed companies operating in BRICS countries throughout 2017–2021. The main method of the research is the Fixed Effect method for panel data. The results showed that there is no statistical significance between ESG and ROA. Besides, government pillars negatively affect ROA through CSR that is explained by legitimacy theory. As for TSR, ESG, social and environment pillars have positive effects on market performance measure, following stakeholder theory. Regarding economic performance, ESG and social pillar have negative influence on EVA spread.
Downloads
References
Capon, N., Farley, J. U., & Hoenig, S. (1990). Determinants of financial performance. A meta analysis. Management Science, 36(10), 1143–1158. https://doi.org/10.1287/mnsc.36.10.1143 DOI: https://doi.org/10.1287/mnsc.36.10.1143
Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance and Investment, 5(4), 210–233. https://doi.org/10.1080/20430795.2015.1118917 DOI: https://doi.org/10.1080/20430795.2015.1118917
Robles-Elorza, D., San-Jose, L., & Urionabarrenetxea, S. (2023). Deep-diving into the relationship between Corporate Social Performance and Corporate Financial Performance - A comprehensive investigation of previous research. European Research on Management and Business Economics, 29(2), 100209. https://doi.org/10.1016/j.iedeen.2022.100209 DOI: https://doi.org/10.1016/j.iedeen.2022.100209
Alkaraan, F., Albitar, K., Hussainey, K., & Venkatesh, V. G. (2022). Corporate transformation toward Industry 4.0 and financial performance: The influence of ESG. Technological Forecasting and Social Change, 175(March 2021), 121423. https://doi.org/10.1016/j.techfore.2021.121423 DOI: https://doi.org/10.1016/j.techfore.2021.121423
Garcia, A. S., Mendes-Da-Silva, W., & Orsato, R. (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 DOI: https://doi.org/10.1016/j.jclepro.2017.02.180
Khan, M. A. (2022). ESG disclosure and Firm performance: A bibliometric and meta analysis. Research in International Business and Finance, 61(April), 101668. https://doi.org/10.1016/j.ribaf.2022.101668 DOI: https://doi.org/10.1016/j.ribaf.2022.101668
Boston Consulting Group. (2000). New Perspectives on Value Creation : A Study of the World’s Top Performers. https://media-publications.bcg.com/pdf/VCR/2000-VCR-New-Perspectives-on-Value-Creation.pdf
Lee, M. T., & Suh, I. (2022). Understanding the effects of Environment, Social, and Governance conduct on financial performance: Arguments for a process and integrated modelling approach. Sustainable Technology and Entrepreneurship, 1(1), 100004. https://doi.org/10.1016/j.stae.2022.100004 DOI: https://doi.org/10.1016/j.stae.2022.100004
Pedersen, L. H., Fitzgibbons, S., & Pomorski, L. (2021). Responsible investing: The ESG-efficient frontier. Journal of Financial Economics, 142(2), 572–597. https://doi.org/10.1016/j.jfineco.2020.11.001 DOI: https://doi.org/10.1016/j.jfineco.2020.11.001
Henisz, W., Koller, T., & Nuttall, R. (2019). Five ways that ESG creates value. McKinsey Quarterly, November, 1–12.
Hedqvist, L., Larsson, A., Hansen, F., & Duras, T. (2020). ESG or Financial Performance –Does It Have to Be a Choice? May.
Servaes, H., & Tamayo, A. (2013). The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness. Management Science, 59(5), 1045–1061. https://doi.org/10.1287/mnsc.1120.1630 DOI: https://doi.org/10.1287/mnsc.1120.1630
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 DOI: https://doi.org/10.1287/mnsc.2014.1984
Albuquerque, R., Koskinen, Y., & Zhang, C. (2019). Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence. Management Science, 65(10), 4451–4469. https://doi.org/10.1287/mnsc.2018.3043 DOI: https://doi.org/10.1287/mnsc.2018.3043
Agoraki, M. E. K., Giaka, M., Konstantios, D., & Patsika, V. (2023). Firms’ sustainability, financial performance, and regulatory dynamics: Evidence from European firms. Journal of International Money and Finance, 131, 102785. https://doi.org/10.1016/j.jimonfin.2022.102785 DOI: https://doi.org/10.1016/j.jimonfin.2022.102785
Gillan, S. L., Koch, A., & Starks, L. T. (2021). Firms and social responsibility: A review of ESG and CSR research in corporate finance. Journal of Corporate Finance, 66(June 2020), 101889. https://doi.org/10.1016/j.jcorpfin.2021.101889 DOI: https://doi.org/10.1016/j.jcorpfin.2021.101889
Whelan, T., Atz, U., Van Holt, T., & Clark, C. (2021). ESG and Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015-2020. NYU | STERN Report, 520–536. https://www.stern.nyu.edu/sites/default/files/assets/documents/NYU-RAM_ESG-Paper_2021 Rev_0.pdf
Naeem, N., Cankaya, S., & Bildik, R. (2022). Does ESG performance affect the financial performance of environmentally sensitive industries? A comparison between emerging and developed markets. Borsa Istanbul Review, 22, S128–S140. https://doi.org/10.1016/j.bir.2022.11.014 DOI: https://doi.org/10.1016/j.bir.2022.11.014
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 DOI: https://doi.org/10.1002/smj.2131
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 DOI: https://doi.org/10.1016/j.econmod.2015.09.019
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 DOI: https://doi.org/10.1108/JGR-11-2016-0029
Zhou, G., Liu, L., & Luo, S. (2022). Sustainable development, ESG performance and company market value: Mediating effect of financial performance. Business Strategy and the Environment, 31(7), 3371–3387. https://doi.org/10.1002/bse.3089 DOI: https://doi.org/10.1002/bse.3089
Preston, L., & O’Bannon, D. P. (1997). The Corporate Social-Financial Performance Relathionship. Business and Society, 36(4), 419–429. DOI: https://doi.org/10.1177/000765039703600406
Rahdari, A. H. (2016). Developing a fuzzy corporate performance rating system: A petrochemical industry case study. Journal of Cleaner Production, 131, 421–434. https://doi.org/10.1016/j.jclepro.2016.05.007 DOI: https://doi.org/10.1016/j.jclepro.2016.05.007
Fernandez, P. (2003). Three residual income valuation merhods and discounted cash flow valuation (Vol. 31, Issue 2). https://doi.org/10.53841/bpscpr.2016.31.2.33 DOI: https://doi.org/10.2139/ssrn.296945
Ивашковская, И. В., Кукина, Е. Б., & Пенкина, И. В. (2010). Экономическая добавленная стоимость. Концепции. Подходы. Инструменты. Корпоративные Финансы, 2(14), 103–108. DOI: https://doi.org/10.17323/j.jcfr.2073-0438.4.2.2010.103-108
Gonçalves, T. C., Louro, D., & Barros, V. (2023). Can Corporate Sustainability Drive Economic Value Added? Evidence from Larger European Firms. Journal of Risk and Financial Management, 16(4). https://doi.org/10.3390/jrfm16040215 DOI: https://doi.org/10.3390/jrfm16040215
Huang, J., Li, G., & Li, Z. (2022). Research on the Correlation between ESG Performance and Economic Value Added. Forest Chemicals Review, 1501, 1501–1514. http://www.forestchemicalsreview.com/index.php/JFCR/article/view/1019%0Ahttp://www.forestchemicalsreview.com/index.php/JFCR/article/download/1019/957
Zheng, J., Khurram, M. U., & Chen, L. (2022). Can Green Innovation Affect ESG Ratings and Financial Performance? Evidence from Chinese GEM Listed Companies. Sustainability (Switzerland), 14(14), 1–32. https://doi.org/10.3390/su14148677 DOI: https://doi.org/10.3390/su14148677
Shabbir, M. S., Aslam, E., Irshad, A., Bilal, K., Aziz, S., Abbasi, B. A., & Zia, S. (2020). Nexus between corporate social responsibility and financial and non-financial sectors’ performance: a non-linear and disaggregated approach. Environmental Science and Pollution Research, 27(31), 39164–39179. https://doi.org/10.1007/s11356-020-09972-x DOI: https://doi.org/10.1007/s11356-020-09972-x
Alshehhi, A., Nobanee, H., & Khare, N. (2018). The impact of sustainability practices on corporate financial performance: Literature trends and future research potential. Sustainability (Switzerland), 10(2). https://doi.org/10.3390/su10020494 DOI: https://doi.org/10.3390/su10020494
Hong, H., & Kacperczyk, M. (2009). The price of sin: The effects of social norms on markets. Journal of Financial Economics, 93(1), 15–36. https://doi.org/10.1016/j.jfineco.2008.09.001 DOI: https://doi.org/10.1016/j.jfineco.2008.09.001
McWilliams, A., Siegel, D. S., & Wright, P. M. (2006). Corporate social responsibility: Strategic implications. Journal of Management Studies, 43(1), 1–18. https://doi.org/10.1111/j.1467-6486.2006.00580.x DOI: https://doi.org/10.1111/j.1467-6486.2006.00580.x
Copyright (c) 2023 National Research University Higher School of Economics

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