Sustainability

Research

19 pages, 492 KiB

Open AccessArticle

Sustainable Disclosure Policies and Sustainable Performance of European Listed Companies

by Vincenzo D’Apice, Giovanni Ferri and Francesca Lipari

Sustainability 2020, 12(15), 5920; https://doi.org/10.3390/su12155920 - 23 Jul 2020

Cited by 1 | Viewed by 2064

Sustainable disclosure has become common for companies to publicly signal their responsible behavior. Our research idea is twofold. First—irrespective of its content—better quality sustainable disclosure should identify more sustainability compliant companies. Second, we propose that those companies should have a more stable—and thus [...] Read more.

Sustainable disclosure has become common for companies to publicly signal their responsible behavior. Our research idea is twofold. First—irrespective of its content—better quality sustainable disclosure should identify more sustainability compliant companies. Second, we propose that those companies should have a more stable—and thus more sustainable—performance. Focusing on the top-capitalized companies of the EU-28 stock exchanges, we assess how GRI sustainable-reporting quality associates with stock-price volatility and distance-to-default. Our results, which resist various robustness checks, confirm that better quality sustainable disclosure couples with more sustainable performance. Thus, pro-disclosure policies could enhance long-term value creation. Full article

(This article belongs to the Special Issue Financial Markets, Instruments and Intermediaries for Social, Environmental and Fiscal Sustainability)

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16 pages, 249 KiB

Open AccessEditor’s ChoiceArticle

Does Audit Improve the Quality of ESG Scores? Evidence from Corporate Misconduct

by Alfonso Del Giudice and Silvia Rigamonti

Sustainability 2020, 12(14), 5670; https://doi.org/10.3390/su12145670 - 15 Jul 2020

Cited by 44 | Viewed by 15107

Abstract

One of the main controversial aspects of sustainability metrics relies on the accuracy, transparency, and reliability of the information at the basis of environmental, social and governance (ESG) scores. This paper investigates whether firms that have their ESG reporting audited by independent firms [...] Read more.

One of the main controversial aspects of sustainability metrics relies on the accuracy, transparency, and reliability of the information at the basis of environmental, social and governance (ESG) scores. This paper investigates whether firms that have their ESG reporting audited by independent firms exhibit a higher quality of ESG scores. We performed an analysis investigating the change in ESG scores following the unveiling of a corporate misconduct. We documented that, overall, no significant ESG score adjustment occurs after the scandal becomes public, thus, implying that rating agencies provide an accurate interpretation of the firm’s sustainability. However, our results differed when we distinguished between audited and unaudited reports. Firms whose reports are audited by third parties did not exhibit significant changes in their scores after a scandal, whereas for companies whose reports are not audited, we detected a worsening of the ESG scores that are statistically significant. Our findings were also confirmed in a multivariate analysis. Overall, our results suggest that the reliability of ESG scores can benefit from the auditing of sustainability reporting by third parties, which has an assurance effect on the quality of the company’s ESG information. Full article

(This article belongs to the Special Issue Financial Markets, Instruments and Intermediaries for Social, Environmental and Fiscal Sustainability)

29 pages, 775 KiB

Open AccessArticle

Does Good ESG Lead to Better Financial Performances by Firms? Machine Learning and Logistic Regression Models of Public Enterprises in Europe

by Caterina De Lucia, Pasquale Pazienza and Mark Bartlett

Sustainability 2020, 12(13), 5317; https://doi.org/10.3390/su12135317 - 01 Jul 2020

Cited by 72 | Viewed by 17963

Abstract

The increasing awareness of climate change and human capital issues is shifting companies towards aspects other than traditional financial earnings. In particular, the changing behaviors towards sustainability issues of the global community and the availability of environmental, social and governance (ESG) indicators are [...] Read more.

The increasing awareness of climate change and human capital issues is shifting companies towards aspects other than traditional financial earnings. In particular, the changing behaviors towards sustainability issues of the global community and the availability of environmental, social and governance (ESG) indicators are attracting investors to socially responsible investment decisions. Furthermore, whereas the strategic importance of ESG metrics has been particularly studied for private enterprises, little attention have received public companies. To address this gap, the present work has three aims—1. To predict the accuracy of main financial indicators such as the expected Return of Equity (ROE) and Return of Assets (ROA) of public enterprises in Europe based on ESG indicators and other economic metrics; 2. To identify whether ESG initiatives affect the financial performance of public European enterprises; and 3. To discuss how ESG factors, based on the findings of aims #1 and #2, can contribute to the advancements of the current debate on Corporate Social Responsibility (CSR) policies and practices in public enterprises in Europe. To fulfil the above aims, we use a combined approach of machine learning (ML) techniques and inferential (i.e., ordered logistic regression) model. The former predicts the accuracy of ROE and ROA on several ESG and other economic metrics and fulfils aim #1. The latter is used to test whether any causal relationships between ESG investment decisions and ROA and ROE exist and, whether these relationships exist, to assess their magnitude. The inferential analysis fulfils aim #2. Main findings suggest that ML accurately predicts ROA and ROE and indicate, through the ordered logistic regression model, the existence of a positive relationship between ESG practices and the financial indicators. In addition, the existing relationship appears more evident when companies invest in environmental innovation, employment productivity and diversity and equal opportunity policies. As a result, to fulfil aim #3 useful policy insights are advised on these issues to strengthen CSR strategies and sustainable development practices in European public enterprises. Full article

(This article belongs to the Special Issue Financial Markets, Instruments and Intermediaries for Social, Environmental and Fiscal Sustainability)

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21 pages, 1803 KiB

Open AccessArticle

The Function of Transition Brokers in the Regional Governance of Implementing Circular Economy—A Comparative Case Study of Six Dutch Regions

by Jacqueline M. Cramer

Sustainability 2020, 12(12), 5015; https://doi.org/10.3390/su12125015 - 19 Jun 2020

Cited by 19 | Viewed by 4492

Abstract

This paper addresses the question of which function systemic intermediaries (here called ‘transition brokers’) can fulfil in the regional governance of implementing a circular economy (CE). Empirical research on this issue is scarce. The conclusion, based on a comparative case study of six [...] Read more.

This paper addresses the question of which function systemic intermediaries (here called ‘transition brokers’) can fulfil in the regional governance of implementing a circular economy (CE). Empirical research on this issue is scarce. The conclusion, based on a comparative case study of six Dutch regions, is that transition brokers fulfil the function of system orchestration. They can enhance processes of change, build alliances, help create the necessary preconditions, and develop impactful circular initiatives from a neutral standpoint. In a multi-stakeholder setting, transition brokers fulfil a variety of roles, depending on time period, content, and context. Executing these roles requires a number of specific competencies, varying from being entrepreneurially minded to daring to leave one’s comfort zone and being able to get the idea of CE accepted in a variety of businesses and organisations. From interviews held with key transition brokers in the six regions, it transpired that there is a clear division of labour between transition brokers vis-à-vis other key actors, among which the local government is included. These findings allow the design of a new model of regional governance in implementing CE from a system level perspective. It is recommended to perform similar case studies in other countries to generalise the results presented here. Full article

(This article belongs to the Special Issue Financial Markets, Instruments and Intermediaries for Social, Environmental and Fiscal Sustainability)

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17 pages, 1434 KiB

Open AccessArticle

The Effect of IPCC Reports and Regulatory Announcements on the Stock Market

by Elena Rogova and Galina Aprelkova

Sustainability 2020, 12(8), 3142; https://doi.org/10.3390/su12083142 - 14 Apr 2020

Cited by 6 | Viewed by 2856

Abstract

This study explores U.S. public companies’ reactions to scientific announcements by the IPCC (Intergovernmental Panel on Climate Change) with respect to updated climate change knowledge and how it affects their stock valuations, given their carbon emission/environmental outlooks. Based on a sample of total [...] Read more.

This study explores U.S. public companies’ reactions to scientific announcements by the IPCC (Intergovernmental Panel on Climate Change) with respect to updated climate change knowledge and how it affects their stock valuations, given their carbon emission/environmental outlooks. Based on a sample of total daily returns collected for 10 industry indexes from the S&P 500 Index over the period 1990–2014, and using an event study approach, we analyze the connection between IPCC assessment report announcements and firms’ returns to evaluate panel data models. We found that various sectors, regardless of their carbon profiles, react abnormally to IPCC report announcements without remarkable long-run cumulative effects. The implications of these results are that there is no clear violation of the efficient markets hypothesis, yet short-term profits may be gained. Furthermore, the market still reacts to new scientific announcements, even though 24 years have passed since the first IPCC report. In addition, there is a negative relationship for low and medium carbon-intensive industries, especially in the short term. Full article

(This article belongs to the Special Issue Financial Markets, Instruments and Intermediaries for Social, Environmental and Fiscal Sustainability)

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34 pages, 1498 KiB

Open AccessFeature PaperArticle

Legal Origins and Corporate Social Responsibility

by Leonardo Becchetti, Rocco Ciciretti and Pierluigi Conzo

Sustainability 2020, 12(7), 2717; https://doi.org/10.3390/su12072717 - 30 Mar 2020

Cited by 8 | Viewed by 3529

Abstract

The legal origin literature documents that civil and common law traditions have different impacts on economic outcomes. We contribute to this literature by formulating and testing hypotheses on the effect of legal origins on corporate social responsibility, overall and in different specific dimensions. [...] Read more.

The legal origin literature documents that civil and common law traditions have different impacts on economic outcomes. We contribute to this literature by formulating and testing hypotheses on the effect of legal origins on corporate social responsibility, overall and in different specific dimensions. We find that, net of industry-specific effects, companies in common law countries score higher in corporate governance and community involvement, while those in countries belonging to the French legal tradition of civil law do better in human resources. We also observe no significant differences in terms of environmental protection among companies in civil and common law countries, which we attribute to a progressive convergence towards common industry sustainability standards. Full article

(This article belongs to the Special Issue Financial Markets, Instruments and Intermediaries for Social, Environmental and Fiscal Sustainability)

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16 pages, 835 KiB

Open AccessArticle

Does Working Capital Affect Family Firms’ Decision-Making in Laos? Evidence from a Two-Wave Cross-Lagged Approach

by Hanvedes Daovisan and H. L. Shen

Sustainability 2020, 12(7), 2658; https://doi.org/10.3390/su12072658 - 27 Mar 2020

Cited by 2 | Viewed by 3817

Abstract

Family firms are the backbone of the socialist transition to a market-oriented economy in Laos. Working capital is an important area of finance that has not been widely studied in relation to family firms’ decision-making. We hypothesize that working capital has a positive [...] Read more.

Family firms are the backbone of the socialist transition to a market-oriented economy in Laos. Working capital is an important area of finance that has not been widely studied in relation to family firms’ decision-making. We hypothesize that working capital has a positive cross-lagged effect on decision-making. The hypotheses were tested on a sample of 779 Laotian family firms from 2016 to 2017 (

t_{1}

) and from 2018 to 2019 (

t_{2})

. The analysis was performed using a two-wave cross-lagged model under structural equation modelling. Our results confirm that working capital (access to finance, cash, debt financing, inventory, growth, and profitability) has a positive cross-lagged effect on decision-making. In addition, the findings also suggest that family firms’ early-debt financing could have a vital influence on decision-making. The practical implications of the results are discussed. Full article

(This article belongs to the Special Issue Financial Markets, Instruments and Intermediaries for Social, Environmental and Fiscal Sustainability)

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25 pages, 2016 KiB

Open AccessArticle

Sustainability in the Banking Sector: A Predictive Model for the European Banking Union in the Aftermath of the Financial Crisis

by Cristina Gutiérrez-López and Julio Abad-González

Sustainability 2020, 12(6), 2566; https://doi.org/10.3390/su12062566 - 24 Mar 2020

Cited by 12 | Viewed by 4777

Abstract

Given the central role of banks in financial stability and the recent impact of their insufficient capitalization, this article focuses on finding determinants of their solvency through financial variables. The study considers the European Banking Union framework and the results of the latter [...] Read more.

Given the central role of banks in financial stability and the recent impact of their insufficient capitalization, this article focuses on finding determinants of their solvency through financial variables. The study considers the European Banking Union framework and the results of the latter stress test exercises, using a panel of the 45 banks based in 15 European countries that were stress tested in 2014, 2016 and 2018. This paper models bank soundness proxied by the stressed tier capital 1 ratio by means of financial indicators representing a CAMELS (Capital, Assets quality, Management, Earnings, Liquidity and Sensitivity to market risk) approach as well as global systemically important financial institutions (G-SIFIs) additional requirements. The model also specifies a dummy covariate referred to the disclosure of corporate social responsibility (CSR) reports, adopting a comprehensive sustainability scheme. The research period starts with the European Banking Union and includes the three exercises conducted since then. We find that financial sustainability is positively correlated with higher capitalization, earnings and liquid assets, while poor quality assets (high non-performing loans) and inefficiency impact negatively on bank soundness. Moreover, it considers the year-scenario interaction either as a fixed or a random effect. The results support capital and liquidity regulation and highlight factors that reinforce banking soundness. They also reveal a positive connection between CSR and banking solvency. Full article

(This article belongs to the Special Issue Financial Markets, Instruments and Intermediaries for Social, Environmental and Fiscal Sustainability)

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15 pages, 624 KiB

Open AccessEditor’s ChoiceArticle

Financial Performance of SDG Mutual Funds Focused on Biotechnology and Healthcare Sectors

by Carmen-Pilar Martí-Ballester

Sustainability 2020, 12(5), 2032; https://doi.org/10.3390/su12052032 - 06 Mar 2020

Cited by 12 | Viewed by 3403

Abstract

Measures favoring healthy lives among populations around the world are essential to reduce social inequalities. Mutual funds could play an important role funding these measures if they are able to attract socially concerned investors by improving their wealth. This study analyzes the financial [...] Read more.

Measures favoring healthy lives among populations around the world are essential to reduce social inequalities. Mutual funds could play an important role funding these measures if they are able to attract socially concerned investors by improving their wealth. This study analyzes the financial performance of mutual funds focused on the biotechnology and healthcare sectors related to UN sustainable development goal 3 (SDG 3), comparing their risk-adjusted return with that achieved by conventional mutual funds. This study implements Carhart’s multifactor model and Bollen and Busse’s timing multifactor model on a sample of 34 biotechnology and 178 healthcare mutual funds and 4352 conventional mutual funds. The results show that biotechnology and healthcare mutual funds perform similarly, while both of them outperform conventional mutual funds. This outperformance of biotechnology and healthcare funds is driven by the superior stock-picking skills of their managers with regards to those of conventional fund managers, while managers of biotechnology, healthcare, and conventional mutual funds present similar poor market timing ability. Mutual funds specialized in biotechnology and healthcare sectors related to sustainable development goal 3 (SDG 3) outperform conventional mutual funds. Full article

(This article belongs to the Special Issue Financial Markets, Instruments and Intermediaries for Social, Environmental and Fiscal Sustainability)

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