ESG Performance of Istanbul Stock Exchange Companies: An Impact Analysis on Firm Value and Profitability

Özet

Purpose - This study aims to analyze the relationship between environmental, social and governance (ESG) performance and financial performance of firms listed on Borsa Istanbul. The study compares firms in the BIST Sustainability Index with other firms in the BIST 100 Index. Design/methodology/approach - A balanced panel data set of 68 firms covering the period 2016-2022 is used. Tobin's Q and ROA are preferred for financial performance and independent variables include sustainability index (dummy), financial leverage, asset size, asset turnover, current ratio and market capitalization. Modelling was performed with panel data analysis. Findings - In the Tobin's Q model, inclusion in the BIST Sustainability Index has a negative impact on market valuation, but in the ROA model, they increase operational efficiency and profitability. With this, it is suggested that ESG practices are not totally suitably assessed by the market; however, they might develop operational performance. Discussion – It is submitted by the findings that market participants might underestimate the long-term advantages of sustainability practices. However, these practices develop operational efficiency and profitability and thus offer firms a competitive advantage. The need for further research and awareness on the financial effects of sustainability practices are highlighted by the study.