A survey on ESG: investors, institutions and firms

Abstract

PurposeOver the past two decades, the topics of Environmental, Social and Corporate Governance (ESG) and Corporate Social Responsibility (CSR) have attracted an increasing amount of interest, reflecting a growing sensitivity of investors and corporations towards environmental, social and governance issues.Design/methodology/approachThis survey offers an overview of the academic literature on ESG/CSR through the lens of investors, institutions and firms. We first discuss the definitions of ESG and CSR and their relationship to each other.FindingsWe next describe how ESG is measured and note problems with the measurement of and quality of ESG data and discrepancies between different measures of ESG. We then turn our attention to investors, examining what types of investors invest in ESG and the role of institutional investors in ESG. From the firm's perspective, we discuss why firms themselves conduct ESG. We also summarize the literature on the impact of ESG on firms: how ESG affects firms' financing, disclosure and reporting activities and firm performance. Finally, we describe other consequences of the focus of ESG and CSR on firms and investors.Originality/valueThis survey offers an overview of the academic literature on ESG/CSR through the lens of investors, institutions and firms.

Investor’s values and investment decision towards ESG stocks

“…ESG investing, also known as sustainable or socially responsible investing, refers to the type of investment that prioritizes the best ESG factors for selecting stock options. In addition, the increased awareness of investors and businesses on ESG has led to the meteoric growth in the emphasis on ESG and CSR issues (Rau and Yu, 2023).…”

“…ESG investing, also known as sustainable or Investment decision towards ESG stocks socially responsible investing, refers to the type of investment that prioritizes the best ESG factors for selecting stock options. In addition, the increased awareness of investors and businesses on ESG has led to the meteoric growth in the emphasis on ESG and CSR issues (Rau and Yu, 2023). More than $40tn (>25% of all professionally managed assets worldwide) reportedly incorporate ESG thematic overlays into their investing decisions.…”

Understanding the mechanism of environmental, social, and governance impact on enterprise performance in the context of sustainable development

“…The United Nations' Paris Agreement and the 2030 Agenda for Sustainable Development has led to sustainable development gradually impacting the overall value chain of enterprises from strategic and operational perspectives. The environmental, social, governance (ESG) system, as a non-financial evaluation system for enterprises (Rau & Yu, 2023), was first proposed as part of the United Nations' Principles for Responsible Investment in 2006 to comprehensively measure the sustainable development status of enterprises. Recent studies have shown that enterprise performance (EP) is an important influencing factor in pursuing sustainable development and improving ESG (Christensen et al, 2019;Lins et al, 2017;Zhang et al, 2020).…”

“…On the other hand, based on stakeholder theory (Freeman et al, 1984), researchers believe that ESG positively affects EP by shaping brand differentiation (Porter & Kramer, 2006), increasing stakeholder engagement (Eccles et al, 2014;Rau & Yu, 2023), limiting executive myopia and ingrained behavior (Bénabou & Tirole, 2010), and reducing agency costs.…”

“…When the cost of ESG is low, managers will enhance their personal reputation and sacrifice the long‐term interests of the company by investing excessively in ESG, thereby negatively affecting EP (Barnea & Rubin, 2010; Cronqvist et al, 2009; Pagano & Volpin, 2005). On the other hand, based on stakeholder theory (Freeman et al, 1984), researchers believe that ESG positively affects EP by shaping brand differentiation (Porter & Kramer, 2006), increasing stakeholder engagement (Eccles et al, 2014; Rau & Yu, 2023), limiting executive myopia and ingrained behavior (Bénabou & Tirole, 2010), and reducing agency costs. Enterprises with better ESG are more likely to not only obtain bank loans (Christensen et al, 2019; Goss & Roberts, 2011; Lins et al, 2017), but also have lower financing constraints (Cheng et al, 2014; El Ghoul et al, 2011; Zhang et al, 2020), resulting in higher EP.…”