Evaluation of strategic and financial variables of corporate sustainability and ESG policies on corporate finance performance

Figures & data

Table

Study	Sample/theory	Measurement/variables	Main findings
Ingio and Albareda (2019).	7 leading companies fostering sustainability-oriented innovation.	How adapting to SOI can impact returns, strategic/dynamic capabilities.	Sustainability orientated innovation positively influences financial performance as well as driving competition.
Giese et al. (2019).	Companies ESG information was transmitted to their valuation and performance, both through their risk profiles (systematic and un-systematic).	Examining three transmission channels within a standard discounted cash flow model: the cash flow channel, idiosyncratic risk channel and the valuation channel. ESG ratings were used due to being suitable for integration into policy benchmarks and financial analyses.	There is a link between ESG information and the valuation and performance of companies. High ESG scores result in lower cost of capital, higher valuation and lower exposures to tail risk.
Statman and Glushkov (2009).	Stock returns between 1992 and 2007 for sustainable and non-sustainable firms.	Considered CAPM, Fama-French three factor model to assess impact on ROE/ROA and Market Value.	Socially responsible investors tilt their portfolios to stocks with high ESG scores. This could create a trend for increased CSR investment.
Plinke and Knorzer (2006).	Sample of S&P 500 firms using data from the Investor Responsibility Research Centre.	Returns and analysis of CAPM for SRI versus conventional stocks.	Given the level of risk, SRI funds are worse off than conventional funds and strong ESG scores have no impact on stock performance. ESG equities have lower risk of price fluctuations relative to the whole market.
Webley and More (2003)	UK companies with code of ethics over the period 1997–2001.	Economic Value Added, Market Value Added, Revenue, Market Value & P/E ratio.	75% of measures of financial performance for companies with codes of ethics or sustainable practices performed better than those without.
Berrone, Surroca, and Tribo (2007).	515 companies’ returns’ using OLS regression.	Financial measurements such as ROE, MV & ROA.	A strong ethical identity and CSR performance positively relates to high levels of stakeholder satisfaction.
Starks and Białkowski (2016)	1999–2011 returns of SRI versus conventional mutual funds.	Risk-adjusted alphas.	No difference between the alphas or SRI mutual funds and conventional mutual funds. SRI does not cost to achieve goals.
Clark, Feiner, and Viehs (2015)	US firms over 1974–2000.	Cost of capital rates for firms. Sustainable versus unsustainable.	90% of the studies conducted on cost of capital show that sustainability lowers WACC.
Przychodzen and Przychodzen (2015)	Eco-innovative and sustainable firms in Poland and Hungary.	ROA, ROE and earnings retention ratio (ERR).	Eco-innovative and sustainable firms have higher average, ROA, ROE and lower ERR.
Benijts (2008).	SRI in Belgium and the returns associated with SRI.	Tracked valuation of firms, P/E ratio, P/B value and growth ratio.	Firms within the sample have higher returns the more they consider SRI. There has also been a shift in investor requirements to become more socially responsible.
Hart and Ahuja (1996).	Financial performance for firms in the S&P 500.	Return on sales, return on equity and return on assets.	Emissions reduction of the firms tested positively influences ROS, ROE and ROA.
Waddock and Graves (1997)	KLD 8 dimensions	ROA, ROS and ROE.	KLD dimensions have a positive influence on the variables.
Cochran and Wood (1984)	Moskowitz reputation index.	Market value, owner equity & sales.	There is a positive correlation between firms on the index and the variables in question.
Patten (1991)	128 firms in 1985 via regression analysis.	Accounting measures	The disclosure of social performance is associated with accounting measures used.
Berrone, Surroca, and Tribo (2007)	Based on 92 GRI indicators.	Market value added, market value for company.	Corporate ethical identity has a positive influence on stakeholder satisfaction as well as the variables.
Miralles-Quiros, Miralles-Quiros, and Nogueria (2019)	Rolling sample approach of 5 years of adding sustainable ETFs to a stock-bond portfolio	Returns and volatility forecasts of the sustainable ETFs in the stock-bond portfolio against unsustainable.	Investors can benefit from ETFs that have SDGs. Sustainable ETFs can out-perform conventional ETFs.

Figure 1. Corporate sustainability framework I. Source: own work.

Figure 2. Corporate sustainability framework II. Source: own work adapted from Bowman's Strategy Clock.

Table 1. Descriptive statistics.

Variables	Min.	Max.	Mean	Skewness	Std. Dev.	Variance	Kurtosis
KLD 400
ln (MV)	9.91	12.81	11.52	−0.27	0.82	0.67	3.05
ln P/E	2.68	17.8	5.40	3.33	6.1	37.1	14.1
ROE	8.69	107.9	36.38	3.92	56.43	318.1	18.04
Beta	0.55	1.30	0.87	−10.65	0.78	0.61	136.911
ln Total Revenue	2.45	206.1	28.88	4.27	81.7	668.3	20.8
S&P 500
ln (MV)	11.5	13.3	12.30	0.367	0.54	0.30	3.45
ln P/E	2.23	5.48	3.18	2.21	1.03	1.067	14.07
ROE	1.15	46.25	19.01	2.70	18.46	340.7	14.1
Beta	0.41	1.69	0.83	0.69	0.41	0.17	2.53
ln Total Revenue	7.28	12.60	9.20	0.86	1.48	2.20	3.40
PRI abiding
ln (MV)	9.82	12.11	11.00	0.13	0.74	0.55	2.20
ln P/E	7.00	42.00	23.62	11.60	73.78	542.7	14.42
ROE	−2.71	15.12	5.66	0.18	5.33	28.44	3.60
Beta	0.63	2.07	1.52	−0.81	0.42	0.17	3.01

Table 2. Correlation analysis.

	ln (MV)	ln P/E	ROE	Beta	Total return
KLD 400
ln (MV)	1.00
ln P/E	−0.19	1.00
ROE	0.28	−0.19	1.00
Beta	0.08	0.03	−0.32	1.00
Total Return	0.31	0.09	−0.07	−0.19	1.00
S&P500
ln (MV)	1.00
ln P/E	0.43	1.00
ROE	0.19	−0.07	1.00
Beta	0.28	−0.02	0.03	1.00
Total Return	−0.48	0.09	−0.07	−0.08	1.00
	Historical Beta	ROE	ln P/E	ln (MV)	ln Total Return
PRI abiding
Historical Beta	1.00
ROE	−0.260	1.00
P/E	0.013	−0.070	1.00
ln (MV)	0.230	0.340	0.018	1.00
ln Total Return	0.390	−0.210	−0.028	−0.001	1.00
	ln Total Return	ln Market Value	P/E	ROE	Beta
PRI non-abiding
ln Total Return	1.00
ln Market Value	0.06	1.00
P/E	−0.06	0.12	1.00
ROE	0.3	−0.05	−0.19	1.00
Beta	0.4	0.6	−0.14	0.07	1.00

Table 3. Summary of robustness regression results.

	(1)	(2)	(3)	(4)
Market Value	−71.35	1.204	−0.112	−0.224
	(6.038)***	(0.545) *	(0.68) *	(0.288) ***
P/E	5.44	0.192	−0.008	0.0194
	(0.490)***	(0.279)***	(0.002) *	(0.427) *
ROE	0.134	−0.219	−0.275	0.709
	(0.144)***	(0.190)***	(1.122) **	(0.078)***
Beta	13.29	−1.15	1.39	2.177
	(2.95)***	(0.89)***	(0.152)***	(0.101)***
Observations	1147	1194	968	1213
R-squared	0.3677	0.2315	0.1661	0.2744

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