An Analysis of the Determinants of Environmental, Social and Governance (ESG) Scores at the Firm level on Borsa İstanbul Companies

Nida Abdioğlu; Sinan Aytekin

doi:10.37880/cumuiibf.1550128

TR EN

Borsa İstanbul Firmalarında Çevresel, Sosyal ve Yönetişim(ESG) Skorlarının Firma Düzeyindeki Belirleyicilerinin Analizi

Öz

Çevresel, Sosyal ve Yönetişim (ESG) skorları, büyük şirketlerin etik uygulamalar ve sürdürülebilirlik çabalarına göre nasıl değerlendirildiğini yansıtır. Bu skorlar, bir şirketin çevresel, sosyal ve yönetişim uygulamalarıyla ilgili çeşitli faktörlerden etkilenir. Bu çalışmada Borsa İstanbul’da işlem gören 34 firmanın 2018-2022 dönemi ESG skorlarını etkileyen firma düzeyindeki faktörlerin incelenmesi amaçlanmıştır. Bağımlı değişken olarak ESG skorları kullanılırken bağımsız değişkenler olarak ise finansal kaldıraç (LEV), toplam varlıkların logaritması (SIZE), yatırılan sermayenin getirisi (ROIC), kullanılan sermayenin getirisi (ROCE), piyasa değeri/defter değeri (MB) ve hisse yabancı net işlem/toplam hacim (YS) oranları kullanılmıştır. Analizler ayrı ayrı yürütülmekte olup, kurumsal sürdürülebilirliğin üç farklı boyutuna odaklanılmaktadır: çevresel, sosyal ve yönetişim. Çalışmada Driscoll ve Kraay (1998) tahmincileri ile sabit etkiler panel veri analizi kullanılmaktadır. Analiz sonuçlarına göre LEV, ROCE, YS ve SIZE değişkenlerinin ESG skorları üzerinde pozitif etkiye sahip olduğu bulunmuştur. Ayrıca ESG skorunu oluşturan ölçütler ayrı ayrı da incelenmiştir. Çevre ölçütünü (ENV) LEV, ROCE, MB ve SIZE değişkenlerinin olumlu etkilediği tespit edilmiştir. Sosyal ölçüt (SOC) üzerinde LEV, ROCE, MB ve SIZE değişkenleri pozitif ve anlamlı bir etkiye sahipken ROIC değişkeninin negatif etkisi olduğu görülmüştür. Yönetişim ölçütünü (GOV) ROCE, YS ve SIZE değişkenlerinin pozitif yönde etkilediği, diğer taraftan MB değişkeninin ölçüt üzerinde negatif etkiye sahip olduğu bulunmuştur. Analiz sonuçları meşruiyet teorisi ve vekalet teorisi ile uyumludur.

Anahtar Kelimeler

An Analysis of the Determinants of Environmental, Social and Governance (ESG) Scores at the Firm level on Borsa İstanbul Companies

Abstract

Environmental, Social, and Governance (ESG) scores reflect how major corporations are evaluated based on ethical practices and sustainability efforts. This study aims to analyse the factors at the firm level that influence the ESG scores of 34 companies traded on Borsa Istanbul between 2018 and 2022. While the dependent variables are the ESG scores, the independent variables are financial leverage (LEV),c the logarithm of total assets (SIZE), return on invested capital (ROIC), return on capital employed (ROCE), market to book value (MB) ratio, and foreign net transactions/total volume (YS) ratio. The analyses are carried out individually, focusing on the three distinct aspects of corporate sustainability: environmental, social, and governance. This study employs fixed-effect panel data analysis utilizing the Driscoll and Kraay (1998) estimators. According to the results of the analyses, it is found that the variables LEV, ROCE, YS, and SIZE have positive impacts on ESG scores. Furthermore, the criteria that make up the ESG score are also examined separately. It is determined that the environmental criterion (ENV) is positively influenced by the variables LEV, ROCE, MB, and SIZE. The social criterion (SOC) is positively and significantly influenced by the variables LEV, ROCE, MB, and SIZE, while the variable ROIC has a negative effect. The governance criterion (GOV) is positively influenced by the variables ROCE, YS, and SIZE, while the variable MB has a negative impact on the criterion. The results of the analyses are in line with the legitimacy theory and agency theory.

Keywords

References

Abdi, Y., Li, X., & Camara-Turull, X. (2022). Exploring the impact of sustainability (ESG) disclosure on firm value and financial performance (FP) in airline industry: The moderating role of size and age. Environment, Development and Sustainability, 24, 5052-5079.
Ahmad, N., Mobarek, A., Roni, N. N., & Tan, A. W. K. (2021). Revisiting the impact of ESG on financial performance of FTSE350 UK firms: Static and dynamic panel data analysis. Cogent Business & Management, 8(1), 1-18.
Al Amosh, H. & Khatib, S. F. A. (2022). Ownership structure and environmental, social and governance performance disclosure: the moderating role of the board independence. Journal of Business and Socio Economic Development, 2(1), 49-66.
Alkhawaldeh, A. A. (2012). Effects of family and foreign ownership structure on Jordanian credit risk assessment. International Research Journal of Finance and Economics, 90, 92-113.
Alshehhi, A., Nobanee, H., & Khare, N. (2018). The impact of sustainability practices on corporate financial performance: Literature trends and future research potential. Sustainability, 10(2), 494.
Ansoff, H. I. (1965). Corporate strategy. McGraw-Hill, New York.
Arminen, H., Puumalainen, K., Pätäri, S., & Fellnhofer, K. (2017). Corporate social performance: Inter-industry and international differences. Journal of Cleaner Production, 177(3), 426-437.
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, 29(2), 182-194.

Aydoğmuş, M., Gülay, G., & Ergun, K. (2022). Impact of ESG performance on firm value and profitability. Borsa Istanbul Review, 22(S2), S119-S127.
Baldini, M., Maso, L. D., Liberatore, G., Mazzi, F., & Terzani, S. (2018). Role of country and firm level determinants in environmental, social, and governance disclosure. Journal of Business Ethics, 150, 79-98.
Bhaskaran, R. K., Ting, I. W. K., Sukumaran, S. K., & Sumod, S. D. (2020). Environmental, social and governance initiatives and wealth creation for firms: An empirical examination. Managerial and Decision Economics, 41(5), 710-729.
Brammer, S., Brooks, C., & Pavelin, S. (2006). Corporate social performance and stock returns: U.K. Evidence from disaggregate measures. Financial Management, 35(3), 97-116.
Branco, M. C., & Rodrigues, L. L. (2008). Factors influencing social responsibility disclosure by Portuguese companies. Journal of Business Ethics, 83(4), 685-701.
Cai, Y., Pan, C. H., & Statman, M. (2016). Why do countries matter so much in corporate social performance? Journal of Corporate Finance, 41(C), 591-609.
Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. The Financial Review, 38(1), 33-53.
Chairani, C., & Siregar, S. V. (2021). The effect of enterprise risk management on financial performance and firm value: The role of environmental, social and governance performance. Meditari Accountancy Research, 29(3), 647-670.
Chen, Y., Li, T., Zeng, Q., & Zhu, B. (2023).Effect of ESG performance on the cost of equity capital: Evidence from China. International Review of Economics & Finance, 83, 348-364.
Choi, S., & Lee, S. (2018). Revisiting the financial performance–corporate social performance link. International Journal of Contemporary Hospitality Management, 30(7), 2586-2602.
Crespi, F., & Migliavacca, M. (2020). The determinants of ESG rating in the financial industry: The same old story or a different tale? Sustainability, 12(16), 6398.
D’Amato, V., D’Ecclesia, R., & Levantesi, S. (2023). Firms’ profitability and ESG score: A machine learning approach. Applied Stochastic Models in Business and Industry, 40, 243-261.
Dalal, K. K., & Thaker, N. (2019). ESG and corporate financial performance: A panel study of Indian companies. Journal of Corporate Governance, 18, 44-59.
DasGupta, R. (2021). Financial performance shortfall, ESG controversies, and ESG performance: Evidence from firms around the world. Finance Research Letters, 46(B), 102487.
De Lucia, C., Pazienza, P., & Bartlett, M. (2020). Does good ESG lead to better financial performances by firms? Machine learning and logistic regression models of public enterprises in Europe. Sustainability, 12(13), 5317.
DiMaggio, P. J. & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48, 147-160.
Driscoll, J. C., & Kraay, A. C. (1998). Consistent covariance matrix estimation with spatially dependent panel data. The Review of Economics and Statistics, 80(4), 549-560.
Drempetic, S., Klein, C., & Zwergel, B. (2020). The influence of firm size on the ESG score: Corporate sustainability ratings under review. Journal of Business Ethics, 167, 333-360.
Duque-Grisales, E., & Aguilera-Caracuel, J. (2021). Environmental, social and governance (ESG) scores and financial performance of multilatinas: Moderating effects of geographic international diversification and financial slack. Journal of Business Ethics, 168, 315-334.
Fatemi, A., Glaum, M., & Kaiser, S. (2018). ESG performance and firm value: The moderating role of disclosure. Global Finance Journal, 38, 45–64.
Fatima, N., Li, Y., Ahmad, M., Jabeen, G., & Li, X. (2021). Factors influencing renewable energy generation development: a way to environmental sustainability. Environmental Science and Pollution Research, 28, 51714–51732.
Folger-Laronde, Z., Pashang, S., Feor, L., & ElAlfy, A. (2020). ESG ratings and financial performance of exchange-traded funds during the COVID-19 pandemic. Journal of Sustainable Finance & Investment, 12(2), 490-496.
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.
Garcia, A. S., & Orsato, R. J. (2020). Testing the institutional difference hypothesis: A study about environmental, social, governance, and financial performance. Business Strategy and the Environment, 29(8), 3261-3272.
Garcia, A. S., Mendes-Da-Silva, W., & Orsato, R. J. (2017). Sensitive industries produce better ESG performance: evidence from emerging markets. Journal of Cleaner Production, 150, 135-147.
Garcia-Blandon, J., Argilés-Bosch, J. M., & Ravenda, D. (2019). Exploring the relationship between CEO characteristics and performance. Journal of Business Economics and Management, 20(6), 1064-1082.
Giannopoulos, G., Fagernes, R. V. K., Elmarzouky, M., & Hossain, K. A. B. M. A. (2022). The ESG disclosure and the financial performance of Norwegian listed firms. Journal of Risk and Financial Management, 15(6), 237.
Han, J. J., Kim, H. J., & Yu, J. (2016). Empirical study on relationship between corporate social responsibility and financial performance in Korea. Asian Journal of Sustainability and Social Responsibility, 1, 61-76.
Jennifer Ho, L.-C. & Taylor, M.E. (2007). An empirical analysis of triple bottom-line reporting and its determinants: evidence from the United States and Japan. Journal of International Financial Management and Accounting, 18 (2), 123-150.
Jensen, M. C. & Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Karyağdı, N. G., & Şit, A. (2023). İşletmelerin ESG performanslarının sermaye maliyeti ve finansal performansına etkisi: BİST Sürdürebilirlik-25 Endeksi üzerine bir uygulama. Bucak İşletme Fakültesi Dergisi, 6(2), 277-292.
Khaled, R., Ali, H., & Mohamed, E. K. A. (2021). The sustainable development goals and corporate sustainability performance: mapping, extent and determinants. Journal of Cleaner Production, 311, 127599.
Khoury, E. E., Nasrallah, N. & Alareeni, B. (2023). The Determinants of ESG in the banking sector of MENA Region: A Trend or Necessity? Competitiveness Review, 33(1), 7-29.
Kiradoo, G. (2022). Diversity, equity, and inclusion in the workplace: Strategies for achieving and sustaining a diverse workforce. Advance Research in Social Science and Management, Edition 01, 139-151.
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.
Li, Y., Gong, M., Zhang, X., & 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.
Lopez-de-Silanes, F., McCahery, J. A., & Pudschedl, P. C. (2020). ESG performance and disclosure: A cross-country analysis. Singapore Journal of Legal Studies, March, 217-241.
Mahapatra, S. K., Schoenherr, T., & Jayaram, J. (2021). An assessment of factors contributing to firms’ carbon footprint reduction efforts. International Journal of Production Economics, 235, 108073, 1-11.
Marsat, S., & Williams, B. (2011). CSR and market valuation: International evidence. International Conference of the French Finance Association (AFFI). May 11-13 2011.
Naeem, M., Ullah, H., Shahid, J., & Kakakhel, S. J. (2022). The impact of ESG practices on firm performance: Evidence from emerging countries. Indian Journal of Economics and Business, 20(1), 731-750.
Nollet, J., Filis, G., & Mitrokostas, E. (2016). Corporate social responsibility and financial performance: A non-linear and disaggregated approach. Economic Modelling, 52(PB), 400-407.
Parikh, A., Kumari, D., Johann, M., & Mladenović, D. (2023). The impact of environmental, social and governance score on shareholder wealth: A new dimension in investment philosophy. Cleaner and Responsible Consumption, 8, 100101, 1-11.
Perrow, C. (1970). Departmental power and perspectives in industrial firms. Power in Organizations, 7, 59-89.
Pfeiffer, I. & Jarchow, S. (2024). The determinants of compensation report transparency: manager incentives and firm characteristics. Journal of Business Economics, 94, 659-691.
Saygili, E., Arslan, S., & Birkan, A. O. (2022). ESG practices and corporate financial performance: Evidence from Borsa Istanbul. Borsa Istanbul Review, 22(3), 525-533.
Shahbaz, M., Karaman, A. S., Kilic, M., & Uyar, A. (2020). Board attributes, CSR engagement, and corporate performance: What is the nexus in the energy sector? Energy Policy, 143, 111582.
Sharma, P., Panday, P., & Dangwal, R. C. (2020). Determinants of environmental, social and corporate governance (ESG) disclosure: A study of Indian companies. International Journal of Disclosure and Governance, 17, 208-217.
Spence, M. (1973). Job Market Signaling. The Quarterly Journal of Economics, 87(3), 355-374. Şimşek, O., & Çankaya, S. (2021). Bankalarda ESG skorları ile finansal performans arasındaki ilişkinin incelenmesi: G8 ülkeleri örneği. PressAcademia Procedia, 14(1), 169-170.
Şişman, M. E., & Çankaya, S. (2021). Çevresel, sosyal ve kurumsal yönetişim (ESG) verilerinin firmaların finansal performansına etkisi: Hava yolu sektörü üzerine bir çalışma. Çukurova Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 25(1), 73-91.
Velte, P. (2017). Does ESG Performance have an impact on financial performance? Evidence from Germany. Journal of Global Responsibility, 8, 169-178.
Wang, Q., & Wang, S. (2022). The impact of environmental regulation on water resources utilization efficiency. Frontiers in Enviromental Science, 10, 1022929, 1-16.
Warouw, F. F., Mashudi, Arafah, M., Noviany, H., & Hendarto, T. (2024). The rise of environmental, social, and governance (ESG): Assessing the impact and implications for global business practices and policy formulation. International Journal of Science and Society, 6(1), 810-821.
Whelan, T., Atz, U., Holt, T. V., & Clark, C. (2021). ESG and financial performance: Uncovering the relationship by aggregating evidence from 1,000 plus studies published between 2015-2020. NYU Stern Center for Sustainable Business, Rockefeller Asset Management.
Yoon, B., Lee, J., & Byun, R. (2018). Does ESG performance enhance firm value? Evidence from Korea. Sustainability, 10(10), 3635.
Zhao, C., Yu, G., Jiahai, Y., Mengya, W., Daiyu, L., Yiou, Z., & Jiangang, K. (2018). ESG and corporate financial performance: Empirical evidence from China’s listed power generation companies. Sustainability, 10(8), 2607.
Zhao, X., & Murrell, A. (2022). Does a virtuous circle really exist? Revisiting the causal between CSP and CFP. Journal of Business Ethics, 177, 173-192.

Details

Primary Language

English

Subjects

Finance

Journal Section

Research Article

Authors

Nida Abdioğlu ^*
0000-0002-8498-9893
Türkiye

Sinan Aytekin
0000-0003-1502-2643
Türkiye

Early Pub Date

January 19, 2025

Publication Date

January 21, 2025

Submission Date

September 14, 2024

Acceptance Date

November 27, 2024

Published in Issue

Year 2025 Volume: 26 Number: 1

DOI

https://doi.org/10.37880/cumuiibf.1550128

IZ

https://izlik.org/JA34UW94MW

Cite

RIS / Bibtex

APA

Abdioğlu, N., & Aytekin, S. (2025). An Analysis of the Determinants of Environmental, Social and Governance (ESG) Scores at the Firm level on Borsa İstanbul Companies. Cumhuriyet Üniversitesi İktisadi Ve İdari Bilimler Dergisi, 26(1), 95-104. https://doi.org/10.37880/cumuiibf.1550128