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Article
Publication date: 9 December 2024

Ayshe Hyusein and Kemal Cek

This study aims to investigate the relationship between environmental, social and governance (ESG) strategies and corporate financial performance in energy and renewable energy…

Abstract

Purpose

This study aims to investigate the relationship between environmental, social and governance (ESG) strategies and corporate financial performance in energy and renewable energy industries in the USA between 2013 and 2023.

Design/methodology/approach

The system generalised method of moments technique analyses the annual panel data at the given period. LSEG Asset 4 Database (formerly Thompson and Reuters) scores were used to measure ESG and corporate financial performance scores via accounting and market-based performance.

Findings

The results show that energy and renewable energy companies cannot be categorised as individual industries and that there is no difference between the two. Energy industry findings reveal that ESG strategies were positively associated with accounting performance and negatively related to market performance. Both environmental and governance pillars had insignificant and social pillar had positive effects on accounting performance, whereas only the environmental pillar negatively affected market performance.

Originality/value

The findings have unique implications for companies investing in ESG strategies in the US energy industry. They also suggest a direction for formulating compulsory regulations in the US energy industry, which can be valuable for policymakers, governments and financial regulators in shaping the industry’s future and potentially influencing its trajectory.

Details

International Journal of Energy Sector Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1750-6220

Keywords

Article
Publication date: 19 June 2023

Asil Azimli and Kemal Cek

The purpose of this paper is to test if building reputation capital through environmental, social and governance (ESG) investing can mitigate the negative effect of economic…

Abstract

Purpose

The purpose of this paper is to test if building reputation capital through environmental, social and governance (ESG) investing can mitigate the negative effect of economic policy uncertainty (EPU) on firms’ valuation.

Design/methodology/approach

This study uses an unbalanced panel of 591 financial firms between 2005 and 2021 from Canada, France, Germany, Italy, Japan, the United Kingdom (UK) and the USA. Ordinary least square method is used in the empirical tests. To alleviate a potential endogeneity problem, robustness tests are performed using the two-stage least square approach with instrumental variables.

Findings

The results of this paper show that sustainable reporting can offset the negative effect of EPU on the valuation of financial firms. Consistent with the stakeholder-based reputation-building hypothesis, sustainability performance may have an insurance-like impact on firms’ valuation during periods of high uncertainty.

Practical implications

According to the findings, during high policy uncertainty periods, investors accept to pay a premium for the stocks of the firms which built social capital through environmental and social investments. Accordingly, it is suggested that regulatory bodies and governments motivate firms to increase their stakeholder orientation to attain higher reputation capital.

Social implications

Managers can mitigate the negative impact of policy uncertainty on the value of their firms via building social capital, which will increase financial market stability in return, and portfolio investors may use such firms for portfolio optimization decisions.

Originality/value

To the best of the authors’ knowledge, this paper is one of the first to examine the mitigating role of ESG investing on EPU and firm valuation relationships for financial firms. Thus, this study provides new insights related to the impact of ESG performance on valuation during uncertain times.

Details

Sustainability Accounting, Management and Policy Journal, vol. 15 no. 3
Type: Research Article
ISSN: 2040-8021

Keywords

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