To read this content please select one of the options below:

Reconsidering the impact of environmental, social and governance practices on firm profitability

Paolo Agnese (Faculty of Economics and Law, International Telematic University Uninettuno, Roma, Italy)
Rosella Carè (School of Environment, Enterprise and Development (SEED), University of Waterloo, Waterloo, Canada) (Department of Law, Economics and Sociology, Universita degli Studi Magna Graecia di Catanzaro, Catanzaro, Italy)
Massimiliano Cerciello (Department of Economic and Legal Studies, University of Naples – Parthenope, Napoli, Italy)
Simone Taddeo (Euro-Mediterranean Center on Climate Change, Ca’ Foscari University of Venice, Venice, Italy)

Management Decision

ISSN: 0025-1747

Article publication date: 6 August 2024

565

Abstract

Purpose

This paper investigates the relationship between commitment to ESG practices and firm performance using a synthetic index based on ESG disclosure and ESG performance scores.

Design/methodology/approach

Using the Mazziotta-Pareto aggregation method, we develop a novel synthetic index of ESG engagement based on ESG rating and disclosure. This index is employed in a dynamic panel regression, implemented using the Arellano-Bond estimator, to explain profitability in a sample of 146 listed Canadian firms over the period spanning from 2014 to 2021.

Findings

ESG practices may either foster or hinder firm performance. In particular, a synergy emerges between the social and environmental dimensions of ESG practices, shedding light on the relevance of high standards in terms of environmental and social activities.

Practical implications

The study emphasizes the significance of acknowledging the various facets of ESG engagement and the necessity of transcending the current constraints of accessible ESG data and ratings. Synthetic indices combining different types of ESG information may contribute to mitigating the problems created by strategic disclosure on the part of firms, which typically results in undesirable practices such as greenwashing and social washing.

Originality/value

This is the first study that applies the Mazziotta-Pareto method to develop a synthetic index of ESG engagement, tackling each pillar separately. Moreover, when investigating the effect of ESG engagement on profitability, we allow for cross-pillar synergies and/or trade-offs.

Keywords

Acknowledgements

Prof. Carè would like to thank the Royal Bank of Canada (RBC) for supporting her research activities through the RBC Professorship at the University of Waterloo.

Citation

Agnese, P., Carè, R., Cerciello, M. and Taddeo, S. (2024), "Reconsidering the impact of environmental, social and governance practices on firm profitability", Management Decision, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MD-10-2023-1943

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

Related articles