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c 2021 World Scientific Publishing Europe Ltd.

[Link] 0012

Chapter 12
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ESG Performance and ESG Rating:

A Critical Review of the Screening
Financial and Economic Systems Downloaded from [Link]

Methodologies and the Way Forward

Anissa Naouar
Assistant professor and researcher at HEC Sfax University, Tunisia
anissanaouar@[Link]

12.1 Introduction

The financial sector plays a crucial role in the economy. It invests

capital in other economic sectors, which indirectly negatively impact
the environment (among others through waste production) and
social and economic development (through inefficient utilization of
available resources). The impact can also be direct through the
resources/energy consumed by the financial enterprises, which can be
reduced through energy consumption control, measures to conserve
water, and focusing procurement on environmental-friendly suppli-
ers, etc. The indirect impact is higher than the direct impact and, as
such, can be targeted by the financial sector in its quest for higher
sustainability.
Commercial banks for instance can be negatively impacted by
environmental risk. For example, banks can extend financing to envi-
ronmentally harmful projects that could default as a result of more
stringent environmental regulations. On the contrary, being more
alert to environmental risk could help banks improve their per-
formance. Taken at a strategic level, opportunities related to the

327
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328 Financial & Economic Systems: Transformations & New Challenges

transition to a cleaner global economy could drive banks’ future

profitable and sustainable growth. With an increasing number of
investors committing to the Principle of Responsible Investments,
ethical investments and Environmental, Social and Governance
(ESG) factors, financial and non-financial corporates are now more
alert to ESG factors. This has created a market for ESG information.
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In fact, the number of investment funds incorporating ESG criteria

grew from 260 in 2007 to more than 1000 in 2016. More recently,
Fitch Ratings asserts that ESG sector increased by 15% to $52 billion
in the first half of 2019 compared to 1% in 2018. Thus, responsible
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investing is of particular interest to the next generation of investors,

who are expected to inherit more than US$30 trillion in wealth by
2050 (Accenture, 2014).
From a regulatory point of view, policymakers are also starting to
take notice of ESG issues as well, particularly in the European Union
and Asia. For years, the Nordic and Baltic regions led the world in
sustainable investing practices, but this is now spreading across the
globe.
Currently, there are numerous providers of ESG ratings and data
services to investors and asset managers. Their business is boom-
ing as interest in ESG surges and sustainable and social investing
is entering the mainstream. At the end of 2019, according to the
Global Initiative for Sustainability Ratings, there were more than
600 ESG data providers operating globally. These include both well-
established, global data providers like MSCI, Bloomberg, FTSE, and,
recently, S&P Dow Jones; and ESG specialists like Sustainalytics,
VigeoEiris, and TruValue Labs; Trucost (focused on carbon data).
However, while disclosures on ESG matter, there is very little corre-
lation between the data collected, the estimated missing data, how
the different ESG factors are accounted for, and ultimately the rat-
ings produced. As such, ESG scores show inconsistencies that poten-
tially undermine their usefulness to investors. In addition, as rating
agencies play a role in capital allocation, it is crucial to understand
how ESG ratings agencies integrate sustainability principles in their
assessment and whether there is any need for a supra authority to
regulate and provide comprehensive global criteria to the ESG rating
agencies industry.
Despite much academic literature on the link between
performance and various aspects of corporate social responsibility,
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ESG Performance and ESG Rating 329

researchers and practitioners often acknowledge that existing

academic literature does not attempt to critically review practitioner
guidelines or practices (Dumay et al., 2016).
In light of these shortcomings, this chapter has two main
objectives. First, it offers an extensive literature review of the recent
developments of sustainable performance in the non-financial and
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financial sector. Second, it presents a comprehensive qualitative

screening of ESG rating methodologies of the main providers of these
assessments. Finally, it offers a summary of the main challenges and
opportunities related to the ESG rating methods and a critical view
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of the ESG ratings practices. The reminder of this chapter is struc-

tured as follows: Section 12.2 describes the concept of performance
in the financial sector and how it evolved with regards to ESG goals.
Then, Section 12.3 describes the ESG performance across the world.
Section 12.4 provides a literature review of the recent literature on
sustainable performance and Section 12.5 provides a comparative
qualitative screening of main ESG rating methodologies. Finally, the
Section 12.6 concludes.

12.2 The Performance in the Financial Sector

The concept of financial performance of the banks based on the finan-

cial ratios has been applied by different researchers. There is a huge
number of studies that examined bank performance in an effort to iso-
late the factors that explain differences in profitability. These studies
fall generally into several categories. One group has focused broadly
on the link between banks’ earnings and various aspects of banks’
operating performance. A second set of studies has focused on the
relationship between banks’ earnings performance and their balance
sheet structure.
Another body of literature has examined the impact of some
regulatory, macroeconomic or structural factors on overall bank per-
formance. The term bank structure is frequently used when refer-
ring to the characteristics of individual institutions. Individual bank
characteristics such as its loan portfolio composition, and the scale
and scope of its operations, can affect the costs at which it produces
financial services. External determinants of banks’ profitability relate
to factors that are not influenced by a specific bank’s decisions and
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330 Financial & Economic Systems: Transformations & New Challenges

policies, but by events outside the influence of the bank itself. Several
external determinants are included separately in the performance
examination to isolate their influence from that of bank structure so
the impact of the former on profitability may be more clearly dis-
cerned. These factors include the scale of regulations (Jayaratne and
Strahan (1998)), the market structure, GDP growth, inflation, etc.
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The last economic crisis in 2008 put in serious doubt the reputa-
tion of the financial sector. Due to the collapse of the markets in some
developed countries, other markets, both in developed and develop-
ing countries, were inevitably dragged down. As a result of this global
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financial crisis, there is a growing consensus that the financial system

should not only be solid and stable but also sustainable.

12.2.1 New paradigm for performance:

From ECR to ESG performance
Performance measurement allows the management to assess the suc-
cess of the firm’s adaptation to a changing environment. Tradi-
tional management tools are built on financially driven performance
measurement systems. Financial statements are the main source of
information when assessing a company’s financial situation. But,
under the current competitive conditions, successful evaluation of a
company cannot rely solely on the financial indicators. When chang-
ing market and competitive conditions are taken into account, man-
agers need to consider non-financial performance goals as well as
economic goals. Increased awareness of stakeholders on environmen-
tal and social issues necessitated environmental and social perfor-
mance measures to be taken into consideration within the set of
non-financial performance measures.
The paradigm of non-financial performance measures is not a new
phenomenon. Socially responsible investing gained momentum dur-
ing the 1960s as societal concerns surrounding civil rights, women’s
rights, the Vietnam War, and the environment all empowered polit-
ical activists to align their investment strategies with their political
and social beliefs. Following that, Kaplan and Norton (1992) pro-
posed the Balanced Scorecard (BSC) as a management tool that inte-
grates financial and non-financial performance measures and builds a
connection between organizational strategy and operational activity.
Also, after the publication of John Elkington’s book Cannibals with
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ESG Performance and ESG Rating 331

Forks: The Triple Bottom Line (TBL) for the 21st Century Business,
the TBL accounting system became popular (Elkington (1997),
Turan et al. (2008)). TBL accounting means expanding the tradi-
tional reporting framework to an integrated perspective for measur-
ing sustainability that takes into account environmental and social
performance in addition to financial performance and expands stake-
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holders’ knowledge of the company (Goel (2010), Jackson et al.

(2011)).
A Forum for the Future (2002) defines “sustainability as building
a successful business today and delivering value over the long run”.
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According to the African Institute of Corporate Citizenship (2004),

“Sustainability is about ensuring long term business success, while
contributing to society’s present and future social, environmental
and economic needs. This approach requires ethical, environmental,
social and economic considerations to be integrated into all aspects
of the business, reflecting the principles of sustainable development”.
Therefore, there are three broad components of sustainability. They
are sometimes referred to as “people, planet and prosperity”, or the
“social, environmental and economic dimensions”. The need for busi-
nesses to address all three has been encapsulated in the concept of the
“triple bottom line” by assessing these three aspects of sustainability:
economic, social, and environmental performance.
From that period, modern ESG investing took shape following
the 2005 publication of the United Nations-supported Principles for
Responsible Investment (PRI). These principles aimed to develop a
more sustainable global financial system by incorporating ESG issues
into investment practices and laid the groundwork for ESG investing
as a common practice.
With regard to financial firms, for a long time, most of the banks
did not consider the social and environmental problems as relevant
for their operations. The banking industry holds a unique position
with regard to sustainable development because of its intermediation
function between depositors and borrowers. As Finger et al. (2018)
indicate, banks are often excluded from samples in empirical work
due to their special characteristics — different accounting require-
ments, reporting incentives, or risk exposures — compared to other
industries, and they also operate under unique codes. One of the most
known publication in this field is “The do’s and don’ts of sustainable
banking”, which was written by Jan Willem van Gelder, a member
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332 Financial & Economic Systems: Transformations & New Challenges

of BankTrack in 2006. The manual provides an overview of actions

that the banking sector can do and can’t to become more sustainable
through achieving a performing sustainable banking management. It
also presents the methods and guidelines for implementing the prin-
ciples and commitments of sustainable banking in practice.
According to Bouma et al. (2001), sustainable banking can be
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defined as a decision by banks to provide products and services

only to customers who take into consideration the environmental
and social impacts of their activities.
The UNEP Statement of Commitment by Financial Institutions
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on Sustainable Development argues that sustainability in banking is

about meeting the financial needs of the present without compro-
mising the ability of future generations to meet their needs. It is not
only about preserving the environment and biodiversity for future
generations but also about guaranteeing human rights and a life in
dignity, free from poverty. Sustainable finance is defined as the pro-
vision of financial capital and risk management products to projects
and businesses that promote, or do not harm, economic prosperity,
environmental protection, and social justice.

12.3 The Rise of ESG Investment and

Worldwide Evolution

As discussed before, the sustainable performance of a company is

commonly measured by assessing three aspects of sustainability:
economic, social, and environmental performance. Economic perfor-
mance encompasses issues conventionally reported in a company’s
annual financial report and also involves investments in human cap-
ital, research and development, wages and benefits paid, community
development initiatives, etc. Environmental performance includes
the amount of resources that companies use in their operations
such as energy, land, water, and the results of its activities like
waste, air emissions, and chemical residues. The environmental per-
formance of companies is measured mainly by assessing their exter-
nalities to society and the environment, or by measuring their “envi-
ronmental footprint”. Social performance encompasses the impact
of companies (and their suppliers) on the communities they are
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ESG Performance and ESG Rating 333

operating in. It includes employees’ relations, health and safety, ratio

of wages to cost of living, non-discrimination, employee turnover rate,
education, etc.

12.3.1 Defining ESG components?

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ESG as a term and concept was first proposed in June 2004 by the UN
Global Compact’s “Who Cares Wins” initiative to focus mainstream
investors and analysts on the materiality of and interplay between
environmental, social, and governance issues. Key issues for consider-
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ation typically include the following: E: climate change, carbon emis-

sions, pollution, resource efficiency, biodiversity; S: human rights,
labor standards, health & safety, diversity policies, community rela-
tions, development of human capital (health & education); G: cor-
porate governance, corruption, rule of law, institutional strength,
and transparency. A definitive list of ESG issues does not exist —
and it looks impossible to agree on.1 Markets, technologies, poli-
cies, values, and social preferences change all the time, and vary
from region to region, country to country, and even within coun-
tries. Nonetheless, investors and analysts consider ESG performance
in their fundamental analysis of companies with the underlying
premise that companies that proactively manage ESG issues are
better placed than their competitors to generate long-term tangi-
ble (direct) and intangible (indirect) results. While corporate gov-
ernance assesses mostly general management quality, which has a
direct impact on the company’s performance, E and S tend to capture
risk and opportunities linked to a specific industry or region. Under-
standing environmental aspects, for example, is more important
when analyzing utility companies, rather than banks. The connection
between performance and behavior is also more indirect and longer
term for social and environmental factors than it is for corporate
governance.
The following section provides some insight on how ESG rating
evolved across the globe and how it could evolve further over the
next few years.

1
Appendix A summarizes the main ESG issues.
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334 Financial & Economic Systems: Transformations & New Challenges

12.3.2 State-of-the-art: Where do we stand?

An unprecedented agreement around sustainable development pri-
orities among 193 Member States was made by the UN Member
States at the United Nations Conference on Sustainable Develop-
ment (Rio+20) in 2012. The Sustainable Development Goals (SDGs)
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are the result of a three-year long transparent, participatory process

inclusive of all stakeholders’ views. These Goals and targets will stim-
ulate action over the next 20 years in areas of critical importance:
People, Planet, Prosperity, Peace, and Partnership.2 The 17 Sus-
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tainable Development Goals (SDGs) and 169 targets are “global” in

nature taking into account different national realities, capacities, and
levels of development and respecting national policies and priorities.
The SDGs call for building peaceful, inclusive, and well-governed
societies with responsive institutions as the basis for shared prosper-
ity. They realize that we cannot reach our development goals with-
out addressing human rights and complex humanitarian issues at
the same time. Besides, the SDGs are people-centered and planet-
sensitive. They are universal, applying to all countries while recogniz-
ing different realities and capabilities. The goals are not independent
from each other; they need to be implemented in an integrated man-
ner. Accordingly, various ESG-related initiatives have taken place
in many countries during the last decades. European countries have
led the way in terms of implementing sustainable business practices.
This is due, among other reasons, to the recommendations of the
European Union. Specifically, in its 2011 directive, the European
Commission specified that companies should integrate social, envi-
ronmental, and ethical issues into their basic management strategy in
order to maximize the creation of shared value for their shareholders,
the remainder of their stakeholders, and society in general. According
to The European Sustainable Investment Forum, SRI incorporates

2
There are 17 SDGs and 169 targets (1. No poverty, 2. Zero hunger, 3. Good
health and wellbeing, 4. Quality education, 5. Gender equality, 6. Clear water and
sanitation, 7. Affordable and clean energy, 8. Decent work and economic growth,
9. Industry, innovation, infrastructure, 10. Reduced inequalities, 11. Sustainable
cities and communities, 12. Responsible consumption and production, 13. Climate
action, 14. Life below water, 15. Life on land peace, 16. Justice and strong insti-
tutions, 17. Partnerships for the goals).
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ESG Performance and ESG Rating 335

ESG issues as well, as criteria linked to a values-based approach. In

addition, according to the UN, SDGs are expected to be a roadmap
for innovation, with revenue and savings opportunities, mostly in
emerging markets, estimated at over $12 trillion through 2030.
In the US, investors and companies, however, only shifted their
attention to SDGs in the last few years. In 2018, one in every four
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dollars invested in the US was aligned with a SRI strategy. While

ESG approach is better suited to developed economies, which have
benefitted from the general trend of governance, oversight and regu-
lation issues, it would be more relevant in emerging markets, partic-
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ularly from a corporate governance risk perspective and would even

be considered from a country risk perspective. More importantly, the
environment factor and specifically the climate change would impact
the macroeconomy through the negative impact on the labor supply
growth and productivity growth as well as the level of output.
In the context of financial firms, Douglas (2008) find that
(a) banks are increasingly discussing climate change business oppor-
tunities in their annual reports, (b) many have calculated and
disclosed their greenhouse gas (GHG) emissions from operations,
(c) growing demand for climate-friendly financial products and ser-
vices is leading banks into new markets, and (d) investment banks
have taken a leading role in supporting emissions trading mechanisms
and introducing new risk management products.
Therefore, various approaches towards sustainability and “green
banking” have been adopted by banks worldwide (Yeung (2011)).
Broadly, four stages of recognition of and response to sustainability
issues can be identified. Banks can be classified according to their
stage of awareness, and most will pass through the four phases on
their journey towards ‘Sustainability Finance’. They will move from:

• A defensive phase of basic environmental risk management, where

broader sustainability issues are overlooked or ignored, to
• A protective or reactive phase where there is more systematic
management of environmental and social risk, to
• A more proactive or offensive phase, where there is strategic
management of environmental and social risk, and even, limited
environmental and social value added, to
• The ultimate sustainability banking phase, where the triple bot-
tom line approach (people, planet and prosperity) is integrated
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336 Financial & Economic Systems: Transformations & New Challenges

into the bank’s core business strategy, and is no longer limited

to risk avoidance, but is now seen as a potential part of every
type of financial risk management and decision-making process.
Sustainability related issues are recognized as drivers for devel-
oping new products and services, generating additional revenue,
and increasing market share, and consequently the organization
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becomes environmental value driven.

The main business case for integrating ESG is twofold: it can help
banks to manage risks and it can help them to capitalize on opportu-
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nities. Understanding the main ESG drivers3 that come under these
two tenets can help banks establish a clear business case for devel-
oping and implementing an ESG strategy. However, some incidents
relating to negative ESG outcomes caused by the bank lending, client
relationships, and advisory decisions can affect their financial per-
formance. First, these incidents may cause reputational and brand
damage. Second, they may potentially have direct financial impact,
such as increased non-performing loans due to credit/default issues
and client inability to comply with loan agreements.4 In addition,
they can induce increased risk of litigation due to lack of appropri-
ate disclosure on ESG risks for equity and debt issuance activities.
Finally, they can induce higher cost of capital for the bank itself,
related to: (1) equity and debt holders requiring higher returns due
to perceived weak risk management capabilities and quality of loan
book; (2) loss of a low-cost source of capital for banks with retail
operations if depositors shift their funds away due to concerns about
the bank’s ESG impacts. Consequently, the cost concern of the CSR-
ESG initiatives to the banks do not stop only at this operational stage
but also affect credit portfolios and provisions for loan losses. Thus,
banks have to allocate more on their provision of loan losses, which
therefore affects profitability of the banks substantially.

3
Four key drivers can be advanced: (1) Increasing regulatory expectations,
(2) Reputation management and license to operate from shareholders and other
stakeholders, (3) Enhanced risk management, (4) Value creation for the bank.
4
Since many CSR-ESG firms developed in recent years, assessing their business
model and cash flows are hard because their products and sales are very elastic
given the competition from existing firms.
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ESG Performance and ESG Rating 337

12.4 Sustainable Performance and Financial

Performance: Antecedents and Recent
Developments

Today, more and more companies are focusing on different levels —

economic, social, and environmental — trying to maintain a balance
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in the short, medium, and long term. Many scholars and practition-
ers, in recent years, have discussed the need for organizations to
guarantee their own economic sustainability through profit and rein-
vestment into human and social spheres as well as into the protection
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of the planet. Moreover, CSR5 projects have received an increased

interest from many companies who are looking at their advantages
in terms of brand image, new investments, better reputation, and
customer loyalty. Moreover, ESG principles are now increasingly rec-
ognized as central to the growth of financial markets. In the banking
sector, this represents both a demand for greater social and environ-
mental responsibility as well as a new landscape of business oppor-
tunity. Recently, the banks began to realize the major impact of the
sustainable development over the way of ulterior development of the
society and, implicitly over the way of creating the banking value in
the future. Banks are increasing their social responsibility practices,
reinforcing their credibility and the trust that their stakeholders have
in them.
Due to the debate regarding CSR and its potential value creating
capabilities, the question of whether firms should incorporate social
responsibility practices into their management strategies designed to
meet the expectations of their different stakeholders leads to theo-
retical positions in favor and against. Several empirical studies have
explored the cause and effect relationship between Corporate Social
Performance (CSP) and Corporate Financial Performance (CFP) for
both financial and non-financial companies. This literature analyzing
the relationship between CSR and value creation is very extensive,

5
The concept Corporate Social Responsibility (CSR), originally referred to as
Social Responsibility (SR), was discussed as early as the 1930’s (Carroll, 1999).
However, Carroll (1999) argues, it was not until the publication of Bowen’s Social
Responsibilities of the Businessman in 1953 that the concept became popularized
and discussed in similar terminology as it is today. Although, there is no consensus
to one standard definition of SRIs due to its wide range of screening criteria.
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338 Financial & Economic Systems: Transformations & New Challenges

but the results are not conclusive. The most exhaustive overview
study of academic research on this topic was performed by Friede
et al. (2015). They have shown aggregated evidence for more than
2000 empirical studies suggesting that almost 90% of these studies
find a nonnegative ESG–corporate financial performance relation.
More importantly, the large majority of studies report positive find-
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ings and that the results are different when differentiating between
emergent and developed markets (see Appendix C).
In the specific case of the banking industry, studies regarding the
impact of CSR-ESG performance are not abundant, and conclusions
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are mixed. Mostly, they are conducted at a country level, a limited

time period, or a specific socially responsible aspect. Simpson and
Kohers (2002) provided evidence of a positive and significant rela-
tionship between CSR activities and the performance of the com-
pany. However, more recently, Soana (2011) concluded that there is
no statistically significant link between the two measures of perfor-
mance for a sample of Italian banks. Wu and Shen (2013) observed,
on the basis of a sample of 162 banks from 22 countries covering
the period 2003–2009, that CSR is positively associated with finan-
cial performance in terms of asset, capital, net interest income, and
non-financial income. On the contrary, CSR is negatively associated
with unproductive loans. Their results were subsequently affirmed by
Fange et al. (2016) where they expanded their sample to 6,125 banks
in 18 countries. These studies show that banks can use CSR-ESG
to benefit financially from the environmental and social awareness
of their stakeholders. Shen et al. (2016), on the other hand, ana-
lyzed 65 socially responsible banks corresponding to 18 countries
during the period 2000–2009. The results reveal that socially respon-
sible banks have significantly higher financial performance than non-
socially responsible banks. In the US banks context, Cornett et al.
(2014) analyzed the relationship between CSR and financial perfor-
mance during the 2008 financial crisis. Their results indicate that
larger banks perform significantly more CSR activities than smaller
banks. The same authors expanded their research in 2016 by incor-
porating data from 2003 to 2011 and 2010 to 2013. They demon-
strated that the improvement in financial performance did not come
at the expense of the CSR-ESG investments. That said that a higher
CSR-ESG investment doesn’t necessarily result in a lower financial
performance for banks (Cornett et al., 2016).
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ESG Performance and ESG Rating 339

Additionally, Esteban-Sánchez et al. (2017) analyzed the effect of

different CSR dimensions on the financial performance of 154 banks
in 22 countries, before and during the years of financial crisis,
obtaining mixed results, depending on the dimension analyzed.
Other studies such as Weshah et al. (2012), Pradhan (2011),
Dorasamy and Abdel-Baki (2014) arrived also at the same results.
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However, the opposite relationship between CSR-ESG and finan-

cial performance was demonstrated by few other authors. Yýlmaz
(2013) used content analysis and panel regression for a sample of
Turkish banks to show a negative relationship between banks’ return
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on equity and CSR-ESG. Interestingly Yylmaz showed that ROA

and CSR-ESG indicators are independent. Other examples such as
Abeysinghe and Basnayake (2015), who used a sample of banks in
Sri Lanka, showed the same negative relationship between banks’
performance and CSR-ESG. Abu Baker (2018) studied the impact
of CSR-ESG performance on the financial performance of US banks.
He found that only management quality and CSR-ESG have direct
impact on financial performance and both are negatively significant.
On the other hand, he found that CSR-ESG has an indirect posi-
tive impact on financial performance through asset quality. To our
knowledge, there is no empirical paper studying the linkage between
ESG performance and the financial performance of banks in emergent
markets.
Finally, Miralles-Quirós et al. (2019) studied the relationship
between ESG performance and shareholders value creation in a larger
sample of 166 internationally listed commercial banks from 2010 to
2015. Taken into account the level of development, legal systems,
and the geographic area, they conclude that there is no homogeneity
in the value relevance of environmental, social, and governance
practices adopted by the selected banks over the entire sample
period. For instance, there exists a positive and significant relation-
ship between banks’ environmental and corporate governance perfor-
mance with Tobin’s Q and, therefore, on shareholder value creation,
after controlling for bank specific variables. In contrast, social perfor-
mance does not have a direct relationship with the bank’s financial
stakeholders.
Within the Islamic industry, many researchers focused on the
compatibility and complementarities between SDGs and Islamic
banking principles. As Islamic firm is based on the principles of
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340 Financial & Economic Systems: Transformations & New Challenges

fairness, equality, and ethics that lead to social well-being, it seeks

social justice and economic prosperity of the society and encour-
ages sustainable economic activity. On the other hand, Socially
Responsible Investing (SRI) has a similar rationale. SRI is sometimes
referred to as “sustainable”, “socially conscious”, “mission”, “green”,
or “ethical” investing. Therefore, SDG values have parallels relevance
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and application with Islamic Finance practice and provide banks an

opportunity to redefine their role pertaining to people empowerment,
socio-economic development, and the preservation of the environ-
ment.6 However, there are challenges too, as Islamic Finance should
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also comply with Maqasid al Shariah.7

Comparing the Shariah compliance versus ESG compliance
impact on Islamic bank performance, many studies tested if com-
pliance leads to an advantage in terms of performance. In general,
they show that there is no empirical evidence to prove that SRI
screening or Shariah compliance screening lead to lower or better
performance of Islamic banks compared to their conventional peers
(see for instance Abdullah et al. (2007), Hassan et al. (2010) and
Mansor and Bhatti (2011), Elfakhani and Hassan (2005) and Hassan
et al. (2010)).
In relation to non-financial firms, some of them found a nega-
tive or mixed relationship (Vance, 1975, Alexander and Buchholz,
1978; Wright and Ferris, 1997; Stanwick and Stanwick, 1998; Peng
and Yang, 2014; Hirigoyen and Poulain-Rehm, 2015; Cui et al.,
2016). Hirigoyen and Poulain-Rehm (2015), for instance, examined
the causal relationships between the various dimensions of corpo-
rate social responsibility (human resources, human rights in the
workplace, societal commitment, respect for the environment, mar-
ket behavior, and governance) and financial performance (return on
equity, return on assets, market to book ratio) of 329 listed companies
in three geographical areas (the United States, Europe, and the Asia-
Pacific region) between 2009 and 2010. They conclude that greater
social responsibility does not result in better financial performance

6
Appendix B provides the similarities and differences between Shariah compli-
ance criteria and the SDGs.
7
As known, there are two commandments of major importance in the Shariah,
which have an immense bearing on the sustainable development issue. These two
are the command to pay zakah and the prohibition of usury (riba).
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ESG Performance and ESG Rating 341

but also that financial performance negatively impacts corporate

social responsibility. According to this “traditionalist” hypothesis,
social responsibility implies that business managers must act in some
way that is not in the interest of his employers Friedman (1970). Man-
agers are experts at producing and delivering products and/or ser-
vices, so they do not necessarily possess expertise in managing social
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projects. In addition, they have no business advantage when imple-

menting social programs. Managers, acting as agents of the share-
holders, have no mandate to embark on socially responsible projects
that do not enhance the income-generating ability of the firm. By
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pushing a social mission, they reduce a firm’s ability to maximize

shareholder value. Therefore, the responsibility of the company is to
use its resources on activities aimed at maximizing its profits, act-
ing in accordance with the basic rules of society incorporated into
the law and ethical customs. When this is achieved, the contribution
of the company to society will be optimized according to Friedman
(1970). In contrast to this position, some authors found no relation-
ship (Patten, 1991; McWilliams and Siegel, 2001; Nelling and Webb,
2009; Soana, 2011; Makni et al., 2009), while others found a posi-
tive relationship (Russo and Fouts, 1997; Simpson and Kohers, 2002;
Orlitzky et al., 2003; Lai et al., 2010; Saeidi et al., 2015; Clark et al.,
2015). This view has been expanded by the so-called “stakeholder
theory” (Freemen, 1984) which argues that managers have a responsi-
bility to shareholders — the owners of the corporation — to maximize
firm value, and that the better they satisfy stakeholder’s interest, the
more successful the firm will be in the long run. Engaging in socially
responsible behaviors is one of the primary mechanisms through
which a firm may foster and maintain trusting stakeholder relation-
ships, reducing the transaction costs of those relationships (Wicks
et al., 1999; Barnett and Salomon, 2012). Following this theory,
some authors such as Post et al. (2002) argue that companies should
apply social, environmental, and corporate governance aspects that
are necessary, regardless of the costs incurred or the income they
produce. Others like Barnett and Salomon (2006); Brammer and
Millington (2008); McWilliams and Siegel (2000); Cheng et al. (2014)
and Lu and Abeysekera (2015) in CEE countries, Fisher and Sawczyn
(2013) for Germain listed banks, and Yussof and Adamu (2016) for
Malaysian listed companies, provided some support for the existence
of a statistical correlation between some types of CSP and CFP.
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342 Financial & Economic Systems: Transformations & New Challenges

They focused on the firm-level relationship between CSP and CFP

(see also Brammer and Millington (2008); McWilliams and Siegel
(2001)) or the investment portfolio Barnett and Salomon (2006), and
likewise found that the highest and lowest levels of CSP were asso-
ciated with the highest levels of CFP, hypothesizing in some cases
a U-shaped relationship (while others assume a more linear correla-
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tion). Therefore, the company must be understood considering the

plurality of agents involved in it and its objective should not be to
maximize value for the shareholder, but instead, create value for all
the stakeholders including employees, consumers, local communities,
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natural or environmental resources, etc.

Many other scholars, for instance, Margolis and Walsh (2003) and
Barnett (2007) have claimed that we cannot conclude, after years of
study, if investments into social causes return benefits to stakehold-
ers. Barnett (2007), for instance, asserts that after more than thirty
years of research, we cannot clearly conclude whether a one-dollar
investment in social initiatives returns more or less than one dollar
in benefit to the shareholder.
Although research indicates that any causal effect of social
performance on economic performance is likely to be limited and
difficult to detect with common measures, it is argued that the bet-
ter a firm’s social performance, the better it can attract resources
(capital, human) and market its products and services. According to
Porter and van der Linde (1995), social responsibility is a source of
competitive advantage. Barnett (2007), building on the premise of
the instrumental stakeholder theory that social responsibility can be
beneficial to firms, developed the concept of SIC (Stakeholder Influ-
ence Capacity), which he defined as “the ability of a firm to identify,
act on, and profit from opportunities to improve stakeholder rela-
tionships through CSR”. Despite the fact that spending on social
performance is costly, firms that have accrued adequate SIC through
significant social performance may earn financial returns that offset
and come to exceed the costs (Barnett and Salomon, 2012).
Thus, research has shown how business strategies rooted in social
causes can create a virtuous circle seen in the value created in the
local community, the satisfaction of its stakeholders, the company
reputation, and the company sustainability (in the long term). In
other words, the value is continuously created and enforced by mutual
relationships. However, social and responsible investments are not
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ESG Performance and ESG Rating 343

free from the possibility of failure and incorrect implementation.

These problems can neutralize the normally positive impact on the
business and on the firm’s overall performance. It is therefore impor-
tant to know whether these measures are profitable for the company,
in the sense that they allow shareholder value to be maximized. Par-
ticularly, measuring performance of the company against these per-
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formance measures is not an easy task because there are various

multiple criteria which are qualitative. It is indeed difficult to eval-
uate criteria that are verbally evaluated, informally reported, cover
different cycles, and are set based on various units of measurement.
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As evidenced by several surveys, the assessment of environmental

performance is still very limited since it is mainly based on primary
environmental impacts such as natural resource depletion, pollution
emissions, and energy consumption and waste generation — but
not on the long-term environmental impacts of firms’ operations.
The assessment of the social impact of companies, however, seems
a more difficult task and much less developed than the assessment
of economic and environmental performance. Companies today tend
to focus and report on their philanthropic initiatives and improved
labor practices (i.e. reducing accidents at work, hiring more women,
and employing a more ethnically diverse workforce) (Goel (2010),
Hubbard (2009); Székely and Knirsch (2005)).
Overall, a growing body of research shows that ESG factors
are truly material credit risk for investors. The evidence suggests
that incorporating ESG into investing strategies should be part of
the overall credit risk analysis and should contribute to more sta-
ble financial returns. It also dispels the myth that incorporating
ESG means having to sacrifice financial returns. ESG investing is
increasingly becoming part of the mainstream investment process for
investors. In this context, several academic studies agree that com-
panies with high ratings for corporate social responsibility and ESG
factors have a lower cost of capital in terms of debt (loan and bonds)
and equity. Besides, companies with high ESG ratings8 are found to

8
ESG ratings are evaluations of a company based on a comparative assessment
of their quality, standard or performance on environmental, social or governance
(ESG) issues.
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344 Financial & Economic Systems: Transformations & New Challenges

exhibit a better market-based performance than an accounting-based

outperformance (e.g. higher return on assets, return on equity).
Given that ESG investment is increasingly gaining a foothold in
mainstream financial market, the role of ESG ratings providers is
becoming challenging. ESG scores should reflect accurately the ESG
commitment of any firm. Consistency between rating agencies is also
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crucial to help global investors in identifying ESG risks and oppor-

tunities and in their decision-making process when looking to the
long-term sustainability of their portfolios within their portfolios.
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12.5 Qualitative ESG Screening Methodologies

by Main Rating Providers

The number of ESG ratings has grown significantly in the last decade.
It is estimated that there are now over 600 ESG ratings globally.
Driven by increasing investor interest in and demand for ESG-linked
products and portfolios, asset managers are looking to ESG data
and ratings providers to produce products that inform and improve
investment decision-making.
Parallel to this rapid growth in the overall number of ratings,
some agencies have been consolidating. For example, MSCI acquired
GMI Ratings, Vigeo and Eiris merged, Sustainalytics acquired
Solaron Sustainability Services, and ISS bought Oekom. Recently, the
prominent credit ratings agencies S&P, Moody’s, and Fitch entered
the race to provide ESG scores.
Today, experts from different sectors (corporate, think tanks,
academic, NGOs) rank ratings providers differently. A recent study
run by SustainAbility (2019) states that MSCI and Sustainalytics
and Reprisk remain the leaders in the sustainability ratings field
compared to all other ratings providers. For Corporates, Sustain-
alytics, MSCI, and ISS-QualityScore are the next highest, while
Bloomberg, Thomson Reuters, and FTSE round out the top five
for academic/think tank/NGO respondents. RobecoSAM, ISS E&S
Quality Score, Sensofolio, and Refinitivare also identified as eminent
ESG scores providers for companies. The next section provides a
qualitative screening of the methodologies used by the main ESG
providers.
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ESG Performance and ESG Rating 345

12.5.1 ESG ratings screening: Comparison

of the main criteria’s
It clearly appears from the Table 12.1 that individual agencies’ ESG
ratings can vary dramatically. An individual company can carry
vastly divergent ratings from different agencies simultaneously, due
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to differences in methodology, subjective interpretation, or an indi-

vidual agency’s agenda. In fact, each rating agency has a customized
scoring method that evaluates different non-financial metrics that
frequently disagree about the various dimensions of ESG. Determin-
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ing which ESG topics and metrics to evaluate is not a straightforward

exercise — certainly not when compared to traditional financial met-
rics. Core ESG metrics vary from as few as 11 performance indicators
to as many as 1,000 for other agencies. In addition, ESG rating agen-
cies do not fully disclose the indicators they evaluate or the material
impact of selected indicators. There are also inherent biases from
market capitalization size to location, to industry or sector — all
rooted in a lack of uniform disclosure. The qualitative evaluation of
the ESG rating agencies would support investors in understanding
the current state of play in the ESG ratings industry.

12.5.2 Shortcomings and limits of current individual

ratings methodologies
We count a number of significant shortcomings and disparities
in the individual ESG ratings methodologies. They include the
following:

The disclosure limitations and quality of the methodology :

Disclosure-based rating methodology provides ample room for com-
panies to manipulate the disclosure process. Self-reported and unau-
dited sustainability reports invariably present companies in the best
possible light, and rarely do they alert investors of looming prob-
lems. Besides, usually there is a company size bias in the ESG
methodology. Companies with higher market capitalization tend to
be awarded ratings in the ESG space that are meaningfully better
than lower market-capitalization peers, such as mid-sized and small
businesses.
 March 9, 2021
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Table 12.1. Overview of major ESG ratings agencies.

346
ESG agency Overview Main criteria and methodology Rating scale

11:50
Financial & Economic Systems: Transformations & New Challenges
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MSCI Launched in 2010, it provides 10 themes and 37 ESG Key Issues AAA (highest) to CCC
ESG ratings for 6000+ (lowest).
1. Environment: Climate Change,
global companies and
Natural Ressources, Pollution &Waste,

Financial and Economic Systems:. . . – 9in x 6in

400000+ equity and fixed
Environmental Opportunities
income securities. 2. Social: Human Capital, Product
Liability, Stakeholder Opposition,
Social Opportunities
3. Governance: Corporate Governance,
Corporate Behavior

FTSE Launched in 1995 and wholly All 17 SDGs are reflected in the 14 A cumulative calculation
Russell’s owned by London Stock Themes under the ESG framework of total ESG
Exchange Group. The ESG including the 3 pillars (1) Environment performance from 0
Ratings include 7,200 (Biodiversity, Climate Change, (lowest) to 100
securities in 47 Developed Pollution & Resources and Water (highest).
and Emerging markets. Security), (2) Social (Customer
Responsibility, Health & Safety,
Human Rights & Community, and
Labor Standards), (3) Governance

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(Anti-Corruption, Corporate
Governance, Risk Management, and
Tax Transparency).
The Pillars and Themes are built on over
300 individual indicator assessments
that are applied to each company’s
unique circumstances. Also over 100
indicators are sector specific.

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Sustainalytics Created in 2008 after the ESG pillars are split into key indicators 100 (highest) to 0 (lowest)

11:50
consolidation of DSR (at least 70) that include corporate using sector and
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(Netherlands), Scores governance, business ethics, human industry based

(Germany) and AIS capital, data privacy and security, comparisons.
(Spain). Covers carbon own operations, and product

Financial and Economic Systems:. . . – 9in x 6in

internationally 7000+ governance. It also breaks down ESG

ESG Performance and ESG Rating

companies across 42 indicators into three distinct
sectors. In 2017, dimensions: preparedness, disclosure,
Morningstar acquired a and performance.
40% ownership stake in
Sustainalytics.
RepRisk Founded in 1998. It provides It combines a company’s own ESG risk AAA (highest) to D
ESG reports for 84000+ exposure with the ESG risk exposure (lowest).
private and public of the countries and sectors in which
companies in 34 sectors the company has been exposed to risks.
globally. It focuses on 28 ESG issues connected
to the Ten Principles of the UN Global
Compact.a It divides these into
environmental, community relations,
employee relations, and corporate

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governance issues. RepRisk also
includes ESG risk exposure for both a
two-year and a ten-year timeframe
using a scope of 28 ESG issues and 45
“hot topic” tags.
(Continued)

347

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348
Table 12.1. (Continued )

16:2
Financial & Economic Systems: Transformations & New Challenges
ESG agency Overview Main criteria and methodology Rating scale
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ISS E&S Launched in 2018. It It evaluates 380+ factors (at least 240 for each 10 (highest) to 0 lowest for
Quality covered 5000+ industry group) divided into environmental and overall Environment and

Financial and Economic Systems:. . . – 9in x 6in

Score companies across social factors. Areas include management of Social, as well as sub-issues.
multiple industries. environmental risks and opportunities, human
rights, waste and toxicity, and product safety,
quality, and brand. The offering is touted as
being very similar to the company’s well-known
governance score.

Sensefolio Launched in 2015, it It utilizes Machine Learning and Natural All the indicators are
has a global coverage Language Processing (NLP) techniques. The E, mapped to 50 ESG
of more than 80 S, and Governance scores are provided, as well sub-categories and then the
countries and 30000+ as their 11 sub-categories and 51 ESG topics. It scores are normalized. The
companies. includes also a way to filter out companies final weighting depends on
based on controversial activities — e.g. Alcohol, the Industry the company
Tobacco, Gambling, or Fossil Fuel use. operates in.
Environment indicators include climate change, In this way, on Sensefolio’s
sustainability and biodiversity and water. Social 5-point scale, positive news

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indicators include health safety, employee and information are scored
standards, community responsibility, and above 2.5, and negative
human rights. Governance indicators include news and information are
leadership and management structure, business scores below 2.5.
innovation and performance, outside activities,
and business ethics.

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11:50
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Refinitiv Launched in 2018 and ESG Score ranges across 10 main themes. Grades from A+ (the
covers companies Environmental indicators include emissions, highest) to D− (the
across 87 countries environmental product innovation, and resource lowest).

Financial and Economic Systems:. . . – 9in x 6in

including companies use. Social indicators include workforce, human

ESG Performance and ESG Rating

across 47 developed rights, community, and product responsibility.
and emerging Governance indicators include management,
markets. shareholders, corporate social and responsibility
strategy (CSR) based on company-reported
data. Then, the all 10 categories are aggregated
in one category score.

Source: Author’s own construction from the ratings providers’ websites.

a
Human Rights • Principle 1: Businesses should support and respect the protection of internationally proclaimed human
rights; and • Principle 2: make sure that they are not complicit in human rights abuses. Labour • Principle 3: Businesses
should uphold the freedom of association and the effective recognition of the right to collective bargaining; • Principle 4:
the elimination of all forms of forced and compulsory labor; • Principle 5: the effective abolition of child labor; and • Prin-
ciple 6: the elimination of discrimination in respect of employment and occupation. Environment • Principle 7: Businesses
should support a precautionary approach to environmental challenges; • Principle 8: undertake initiatives to promote greater
environmental responsibility; and • Principle 9: encourage the development and diffusion of environmentally friendly tech-

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nologies. Anti-Corruption • Principle 10: Businesses should work against corruption in all its forms, including extortion
and bribery.

349

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350 Financial & Economic Systems: Transformations & New Challenges

Lack of standardization, geographic and industry sector

bias: There are no standardized rules and frameworks for Envi-
ronmental and Social disclosures, or a disclosure auditing process
to verify reported data. Instead, agencies must apply assumptions,
which only add to the subjective nature of ESG ratings. Moreover,
regulatory reporting requirements vary widely by region and juris-
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diction — with two companies active in the same industry, doing the
same general thing, often assigned different scores based on where
they are headquartered. Companies domiciled in Europe, in partic-
ular, often receive much higher ESG ratings than peers based in the
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United States and elsewhere. In addition, company-specific risks and

differences in business models are not accurately captured in compos-
ite ratings. Because of significant differences in business models and
risk exposure, companies in the same industry are unfairly evaluated
under the same model.
Inconsistency and incomparability across rating methodolo-
gies: Individual company ratings are not comparable across agencies,
due to a lack of uniformity of rating scales, criteria, and objectives.
Also, another barrier to integration is the inconsistent coverage across
asset classes or data gaps that prevent scenario analysis. This bias
is related to the access to data and the difficulty to evaluate it accu-
rately. The challenge is finding the right data in the right format and
knowing how to use it.
Failure to identify risk : One of the purposes of ESG ratings is to
evaluate risk profiles and identify misconduct. ESG ratings do not
properly function as warning signs for investors in companies that
experience serious mismanagement issues as larger companies obtain
higher ESG ratings. One of the reasons is that ESG agencies oversim-
plify industry weighting and company alignment. Ratings agencies
claim to normalize ratings by industry. However, more often than
not, agencies assign E, S, and G weights to companies without fac-
toring in company-specific risks. This can result in a biased rating
for an entity based on their industry, as opposed to entity-specific
risks.
Consolidation of ESG ratings: ESG ratings fail to represent a
global marketplace. There is a geographical bias towards compa-
nies in regions with high reporting requirements. Besides, comparing
ESG ratings across geographies is no easy task, especially in a global
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ESG Performance and ESG Rating 351

market. Though the observable differences between company ratings

show a clear distinction — most notably between Europe (the best)
and North America (the worst). But the source of this bias may not
fully reflect the quality of ESG practices, but instead the quality of
reporting. In Europe, for example, the EU requires companies with
500 employees or more to publish a “non-financial statement” as well
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as additional disclosures around diversity policy. North America has

no such requirement for disclosure, which is one source for the posi-
tive bias toward European companies.
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12.6 Conclusion

Nowadays, ESG investing has increasing popularity not only for their
“feel-good” factor but also for its potential to spot financial risks
that often cannot be identified in a company’s quarterly results. For
instance, the threats that climate change pose to a supply chain or
the scandals that could arise from a discriminatory workplace may
have a dramatic impact on a company’s future performance.
Consequently, ESG has become a requirement for all financial and
non-financial firms, and therefore stakeholders increasingly demand
it, regardless of its possible positive or negative impact on financial
performance.
In the current business landscape, policies and requirements for
environmental and social disclosure can vary significantly. They can
even be conflicting and confusing. Moreover, there is no jurisdic-
tion that has any auditing practice on these varying non-financial
investment factors which would distort the information available
to both ratings agencies and investors. Also, by integrating finan-
cial and non-financial data, globally integrated reporting would help
businesses take more sustainable decisions and enable investors and
other stakeholders to transparently understand an organization’s
true performance Dumay et al. (2016).
Given these limitations in the ratings processes and ESG evalua-
tion weaknesses, it worth mentioning that a number of key measures
need to be undertaken in order to push the industry to a higher
quality standard. They include the following:
1. an improved and relevant data quality and disclosure of method-
ology,
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352 Financial & Economic Systems: Transformations & New Challenges

2. a greater consistency and comparability across rating methodolo-

gies,
3. the consolidation of ratings and a standard ESG framework,
4. a greater commitment of rated entities in the evaluation process,
and
5. a better linkage to financial performance.
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From a regulatory perspective, the regulation is still weak and

heterogeneous across countries. For example, countries such as
Finland and Sweden have mandated sustainability reporting for
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state-owned enterprises. The EU requires large companies to reg-

ularly publish reports on the social and environmental impacts of
their operations. Also, a number of measures are already set to be
fully enforced by the New European taxonomy by the end of 2022.
They include disclosure requirements on their ESG indexes, notably,
regarding methodologies and data sourcing but also the commitment
to follow clear guidelines around the criteria implemented according
to the asset classes being included in the index. France was among
the first countries to pass legislation addressing climate change risk
requiring French institutional investors to disclose their carbon foot-
print as well as their green investments. South Africa’s Pension Fund
Act calls on funds to consider ESG criteria in the investment pro-
cess, and the Code for Responsible Investment in South Africa pro-
vides guidelines for institutional investors on how to integrate ESG
factors into investment processes. The China Securities Regulatory
Commission is making it mandatory for all listed companies and
bond issuers to disclose ESG risks by 2020. However, in the United
States, the US Securities and Exchange Commission doesn’t require
corporate disclosure of material ESG data. The SASB, whose mis-
sion is to develop and spread sustainability accounting standards has
recently published a comprehensive set of industry-specific sustain-
ability accounting standards covering financially material issues but
reporting is, for the most part, entirely voluntary and there is not
one recognized set of standards.
Consequently, just like how financial reporting and analysis is con-
ducted, ESG rating providers need a common core benchmark report-
ing that would serve as the basis of a standardized ESG framework.
Furthermore, the preparedness of the firm, and specifically the will-
ingness of the board of directors to implement ESG-related business
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ESG Performance and ESG Rating 353

strategies, is a key information that ESG ratings providers should

incorporate in the company assessment, even though this could result
in giving away some of the financial performance.
Future lines of research would be aimed at producing a framework
for understanding how ESG links to value creation and analyzing the
direct impact on the creation of value for the shareholder and society
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of more specific measures of internal and external ESG factors. In

this way, we could go further into the essential aspects that should
be taken into account by companies for the creation of shared value
and therefore contribute to sustainable development.
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Appendices

Appendix A: Examples of ESG performance issues.

Environmental Social Governance

issues issues issues

Climate change and Customer satisfaction Board composition

carbon emissions
Air and water Data protection and Audit committee
pollution privacy structure
Biodiversity Gender and diversity Bribery and corruption
Deforestation Employee engagement Executive compensation
Energy efficiency Community relations Lobbying
Waste management Human rights Political contributions
Water scarcity Labor standards Whistleblower schemes
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354 Financial & Economic Systems: Transformations & New Challenges

Appendix B: Islamic finance principles versus SDGs.

Knowledge about Islamic Convergent Sustainable

finance in Al Shariah Development Goal

The role of fiscal policy SDG 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11,

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13, 16
Interest, bounty/income SDG 1, 2, 8, 10
Public debt SDG8, 10
Lending as moral phenomenon SDG17 (no moral values)
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Prohibition of interest SDG1, 2, 8, 10, SDG17

Social relations vis-à-vis interest SDG17 (Social capital)
Debtor-creditor relationship SDG1, 10, 12, 17
Impact of interest to social economic SDG1, 3, 12
Productive activities SDG8, 9
Trade SDG8, 9, 10, 12
Objective of economic activities SDG1, 3, 8
Moral values of economic activities SDG12
The wealth SDG1, 8, 10
The money SDG1, 10
Human behavior towards money SDG12
The contract SDG12
Business conduct SDG3
Business profit SDG1, 3
Philanthropy SDG1, 2, 3, 4, 6, 8, 10, 11, 12
Zakat SDG1, 3, 4, 5, 6, 7, 8, 9, 11, 13, 17
Waqf SDG1, 3, 4, 5, 6, 7, 8, 9, 11, 13, 17
Inheritance SDG3
Shadaqah SDG1, 3, 4, 5, 6, 7, 8, 9, 11, 13, 17
Revenue SDG1, 4

Source: A.G Ismail (2016). Islamic Economic Studies and Thoughts Centre.
 March 9, 2021 11:50 Financial and Economic Systems:. . . – 9in x 6in b4035-p3-ch12 page 355

ESG Performance and ESG Rating 355

Appendix C: E, S and G categories and their relation to CFP.

70.0%
62.3%
58.7%
60.0% 55.1%
by anissa naouar on 01/07/22. Re-use and distribution is strictly not permitted, except for Open Access articles.

50.0%

40.0% 35.3%

30.0%
Financial and Economic Systems Downloaded from [Link]

20.0%
9.2% 7.1%
10.0% 4.3% 5.1%

0.0%
E S G Var ious E, S, and G
combinations
Positive Negative

80.0%
70.8%
70.0% 65.4%

60.0%
51.5% 49.8%
50.0% 46.7%
42.7%
38.5% 38.0%
40.0%
33.3%

30.0% 26.1%

20.0%
14.3%
7.1% 8.0% 8.9% 7.7% 7.7%
10.0% 6.2% 5.8%
5.3% 4.2%

0.0%
a

s)

s)

s)

s)

s)
ta

t
ic

pe

ke
io

io

io

io

io
To
er

S/
ol

ol

ol

ol

ol
o

ar
Am

el

U
tf

rtf

tf

rtf

tf
ts

M
or

or

or
/A
ev

ke

po
xp

xp

xp

ng

xp
th

ed
D

ar

Ex
or

(E

(E

(E

(E
gi
pe

op

(
N

er
a

al

ts
ro

ed

el

Em
ic

pe
ev

ke
Eu

To
op
er

S/
D

lo

ar
Am

el

s
e

M
ia
ev

t
ev

ke
As

d/

g
th

ar

n
e
or

gi
pe

op

M
N

er
ro

el

Em
pe
ev
Eu

o
el
ia

ev
As

Source: Friede et al. (2015).

 March 9, 2021 11:50 Financial and Economic Systems:. . . – 9in x 6in b4035-p3-ch12 page 356

356 Financial & Economic Systems: Transformations & New Challenges

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