Abstract
ESG performance has become vital for business in recent years. Consumers, stakeholders and investors alike seek companies that can show that they are environmentally and socially responsible, especially in periods of uncertainty. Using a new measure of uncertainty, the Climate Policy Uncertainty Index developed by Gavriilidis (Measuring climate policy uncertainty, 2021), this study investigates environmental, social and governance (ESG) performance, firm performance and carbon dioxide emission performance in the context of major developments related to climate policy and events. Further, the study provides insights into how ESG performance moderates the impact of climate policy uncertainty on firm performance and carbon dioxide emission performance. Finally, this paper examines how investor sentiment influences ESG performance during periods of high uncertainty. Based on a large sample of 2640 firms (6462 firm-year observations) from the US Fortune 1000 list covering the years 2008–2018, the empirical results demonstrate that climate policy uncertainty positively affects ESG performance and negatively affects firm performance and carbon dioxide emission performance. In addition, we find that firms enhance their ESG performance when investors are pessimistic, especially during periods of high uncertainty. Finally, we show that ESG performance does not moderate the effects of climate policy uncertainty on firm performance and carbon dioxide emission performance. These findings may help managers and policymakers to boost ESG performance to reap the benefits of ESG activities during periods of uncertainty related to changes in climate policy. Further, the results identify a promising channel via investor power that the government and ESG reporting advocates can utilise to encourage firms to act responsibly during periods of uncertainty.
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Source: Gavriilidis (2021)
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Notes
The corruption control reflects perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as the ‘capture’ of the state by elites and private interests. The estimate provides the country’s score on the aggregate indicator, in units of a standard normal distribution (i.e. ranging from approximately − 2.5 to 2.5).
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Appendix A: Variables for the study
Appendix A: Variables for the study
Measure | Operationalization | Source |
|---|---|---|
CEPit | Carbon emission performance measured by firm-level carbon dioxide emission intensity, as presented in Sect. 3.2.5 | Datastream |
CIit | Capital intensity measured as the fixed assets divided by sales | Datastream |
CORIt | Level of corruption measures the annual country's level of corruption | Official site of world bank |
CRit | Cash ratio measured as the total cash holdings divided by current liabilities | Datastream |
CUIt | Climate policy uncertainty developed by Gavriilidis (2021), as presented in Sect. 3.2.1 | Official site of policy uncertainty |
DYit | Dividend yield measured by the annual dividends per share divided by price per share | Datastream |
ECNit | Economic sustainability performance is an index obtained from Thomson Reuters | Datastream |
EFFit | Efficiency measured by the cost of goods sold divided by average inventory | Datastream |
EIit | Export intensity measured as the natural logarithm of total export divided by total sales | Datastream |
ENIIt | Energy intensity measured as the energy consumption divided by GDP | Official site of statista |
ESGit | ESG performance is the Thomson Reuters ESG performance index, as presented in Sect. 3.2.2 | Datastream |
FAit | Firm age is the number of years that a firm has been in operation | Datastream |
FDIIt | Foreign direct investment measures the annual country's foreign direct investment | Official site of OECD |
FSit | Firm size measured by natural logarithm of the firm's total assets | Datastream |
GDPIt | Economic development measures the annual percentage growth rate of GDP | Official site of OECD |
INRIt | Interest rate measures the annual country's interest rate | Official site of OECD |
IRIt | Inflation rate measures the annual country's inflation rate | Official site of OECD |
ISGIt | Industrial share of growth measures the industrial value added to GDP per year expressed as a percentage | Official site of OECD |
ISit | Investor sentiment developed by Aboody et al. (2018), as presented in Sect. 3.2.3 | Datastream |
LEVit | Leverage measured by the total liabilities divided by shareholder's equity | Datastream |
LIit | Labor intensity measured by the natural logarithm of total wages divided by total sales | Datastream |
LRit | Liquidity measured by the current assets divided by current liabilities | Datastream |
MTBit | Market-to-book ratio measured by the market value divided by book value of the firm’s equity | Datastream |
ROAit | Return on assets measured by the net profit divided by total assets | Datastream |
ROEit | Firm performance measured by the return on equity as presented in Sect. 3.2.4 | Datastream |
TANit | Tangibility measured by the fixed assets divided by total assets | Datastream |
TIIt | Technological innovation measured by the total end of the year number of patents | Official site of statista |
TPIt | Total population measured by the natural logarithm of the total population | Official site of OECD |
UPIt | Urban population measures the percentage of the total population lives in urban areas | Official site of world bank |
URIt | Unemployment rate measures the annual country's level of unemployment rate | Official site of OECD |
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Persakis, A. The impact of climate policy uncertainty on ESG performance, carbon emission intensity and firm performance: evidence from Fortune 1000 firms. Environ Dev Sustain (2023). https://doi.org/10.1007/s10668-023-03634-x
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DOI: https://doi.org/10.1007/s10668-023-03634-x