The Impact of Environmental, Social, and Governance (ESG) Scores on Firm Performance: Evidence from Borsa Istanbul

Abstract

Purpose – The purpose of this study is to examine the impact of ESG score, ESG social score, ESG corporate governance score, and ESG environmental score, which are components of sustainability performance derived from companies' environmental, social, and corporate governance (ESG) activities, on companies' return on assets and return on equity.
Design/methodology/approach – Twenty-four companies that published ESG reports during the 10-year period from 2013 to 2022 formed the sample for the study. The data were obtained from the Refinitiv database and analyzed using panel data regression analysis in the Stata program.
Results – The analysis revealed that the ESG score, which represents the company's overall score, increased both the return on assets and return on equity of the companies. When examining the results in terms of return on assets, it was found that environmental, social, and corporate governance scores individually increased return on assets. When examining the results in terms of return on equity, an important finding emerged: ESG practices increased return on equity, and corporate governance practices in particular had a positive impact on return on equity.
Discussion – The findings obtained within the scope of the research are expected to serve as a guide for public and private sector businesses, regulatory and supervisory institutions, and individual and institutional investors. In the context of the transition to a net-zero carbon economy, it is expected that incentives implemented by governments, particularly in the areas of energy efficiency, waste consumption, transition to renewable energy, social awareness, and effective corporate governance policies, will enhance the competitiveness of businesses and improve their financial performance.