How does stakeholder engagement through environmental, social, and governance affect eco‐efficiency and profitability efficiency? Zooming into Apple Inc.'s counterparts

Abstract

As global ecological degradation intensifies, a trade‐off has arisen between environmental protection and production efficiency to achieve sustainable development for the environment, society, and the company itself. However, the potential reverse causality relationship between environmental, social, and governance (ESG) and corporate efficiency may lead to confusion. This study estimates the eco‐efficiency of Apple Incorporated's value‐chain counterparts in the first stage and creates values and profitability in the second stage of efficiency evaluation. Results obtained from the (i) directional distance function in the two‐stage data envelopment analysis (DEA), (ii) additive efficiency decomposition two‐stage network DEA model, and (iii) network slacks‐based measure model are consistent. That is, Apple counterparts manage more efficient eco‐efficiency than profitability efficiency, implying that eco‐efficiency is their competitive advantage. We thus also run a regression analysis to examine how the ESG ratings of Apple counterparts explain their eco‐efficiency and profitability efficiency. Although the overall ESG rating positively explains the efficiencies, we found that the individual governance rating shows no statistically significant effect. The regression results provide insight for practitioners on the importance of investing in the three aspects of a firm's collective conscientiousness for societal and environmental governance. This paper integrates companies' eco‐efficiency and profitability efficiency to resolve the conflict between environmental issues and production efficiency. It also analyzes in depth the effects of ESG and its three individual factors on eco‐, profitability, and average efficiencies. The diversity of research methods also provides new ideas for future research related to firm efficiency.

The impact of ESG factors on financial efficiency: An empirical analysis for the selection of sustainable firm portfolios

“…Differently from other studies using DEA to measure CFP (Bruna et al, 2022; Lu et al, 2023), our study is original as: (a) it does not use DEA as a first step to find a CFP measure to be used in a regression model able to investigate the ESG‐CFP association; instead we use DEA to integrate ESG with CFP to figure out if including ESG into corporate efficiency leads to more efficient investment decision making; (b) unlike the majority of other papers on the ESG‐CFP association, it does not consider that including ESG in investment decision is better or worse in general terms, but that it depends on the ESG sensitivity of the different sectors. ESG performance thus matters only for those sectors characterized by a high sensitivity to ESG.…”

“…Differently from other studies using DEA to measure CFP (Bruna et al, 2022;Lu et al, 2023) The companies that are more concerned with environmental performance score higher on the Environmental (E) pillar, while companies with a greater focus on social responsibility score higher on the Social (S) pillar than on the pillars E and Corporate Governance (G) (Amel-Zadeh & Serafeim, 2018). Therefore, in order to bypass these differences, which could negatively affect the results, it was decided to use Refinitiv's ESG score calculated as the arithmetic mean of the score of each of the three pillars.…”

“…Pham et al (2022) used the DEA in the transportation industry and found that environmental and social score positively impact business performance while governance score negatively affects business performance. Lu et al (2023) investigated Apple Inc.'s value‐chain counterparts by also using DEA and found that ESGs affect firm efficiency, even if the influence is more on eco‐efficiency than on profitability efficiency.…”

“…Furthermore, DEA methodology allows us to overcome the problems that could be caused by a potential reverse causality relationship between ESG and CFP. In other words, interpreting the causal issues of ESG and corporate performance from the perspective of inputs and outputs may be more meaningful, as this approach enables us to truly understand the differences in the efficiency of a company's input resources in terms of ESG and profitability (Gillan et al, 2021; Lu et al, 2023). For this reason, in this study, we introduce the DEA model to measure the CFP.…”

The effect of environmental, social and governance score on operating performance after mergers and acquisitions

“…Since firms that invest more in CSR (hereafter, high CSR firms) tend to have a stronger reputation for keeping their commitment associated with the implicit contracts, stakeholders of these firms are likely to have stronger incentives to contribute resources. This also led to an alignment between the interest of the stakeholders and the shareholders that contributes to a better long-term profitability and efficacy (Deng et al, 2013;Lu et al, 2022).…”