ESG asset demand with information costs

ESG has become a hot topic in investment circles. In this article, we train the ESG lens on sovereign debt. We carry out an empirical analysis to assess whether environmental, social, and governance factors drive pricing and investment returns of sovereign external debt. Our major finding is that ESG considerations matter for sovereign bond investing, even after relevant macroeconomic and credit variables are taken into consideration. This is particularly the case for emerging markets, where we document evidence of an additional ESG risk premium relative to developed markets. Furthermore, by testing an ESG-focused investment strategy, we examine the hypothesis that ESG could potentially detract from investment returns. We find no evidence over our historical time frame that an ESG-focused investment strategy results in any investment disadvantage. In addition, our results suggest support for potential advantages of an active approach to ESG portfolio management. TOPICS:ESG investing, fixed income and structured finance, portfolio construction, performance measurement Key Findings ▪ Our research shows that ESG (environmental, social, and governance) scores are significant drivers of sovereign credit spreads. Debt issued by countries with high social and governance scores in particular, tend to have tighter credit spreads. ▪ The relationship between ESG scores and credit spreads is particularly strong for emerging market countries, where we find evidence of an additional ESG risk premium relative to developed markets. ▪ We find no evidence that investors are penalized for ESG-aware investment strategies in the form of lower returns, but our analysis does support the case for in-depth ESG analysis in the context of an active approach to portfolio management.

Purpose This study investigates the financial impact of Environmental, Social, and Governance (ESG) practices on the performance of publicly listed property companies in Malaysia. Amid growing regulatory and investor pressure, the research aims to assess how ESG dimensions influence operational efficiency, profitability, and market valuation in an emerging market context, where ESG integration remains uneven and underexplored. Design/methodology/approach Using panel data from 91 Malaysian property firms over the period 2012–2023, the study applies Ordinary Least Squares (OLS) regression models and descriptive statistical analyses to evaluate the relationship between ESG scores—both overall and disaggregated by pillar—and a firm’s performance indicators, including Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q. The models incorporate firm-level and macroeconomic control variables to ensure robustness and contextual relevance. Findings The findings reveal that overall ESG performance positively correlates with financial outcomes, with governance and social pillars exerting the strongest influence. Governance quality significantly enhances market valuation, while social initiatives are positively associated with profitability. Environmental performance shows limited short-term impact. Asset growth emerges as a critical driver of financial success, whereas high financial leverage undermines performance. A firm’s size and Gross Domestic Product (GDP) have marginal effects, suggesting internal strategies outweigh macroeconomic conditions in this context. Practical implications The results provide actionable insights for corporate leaders, investors, and policymakers in Malaysia and similar emerging markets. They highlight the importance of embedding ESG into core business strategies rather than treating it as a compliance exercise. The study supports recent regulatory efforts to strengthen ESG reporting and urges firms to prioritise governance structures, stakeholder engagement, and sustainable growth over debt-driven expansion. Originality/value This study offers one of the first large-scale, sector-specific analyses of ESG performance in Malaysia’s real estate industry. It contributes original empirical evidence to the global ESG literature by contextualising ESG-financial linkages in an emerging economy. The findings underscore the strategic value of ESG integration and demonstrate how localised ESG maturity can influence financial outcomes in capital-intensive sectors like real estate.

Purpose In recent years, the disclosure of corporate environmental, social and governance (ESG) information has exhibited a trend of superficial compliance, concealing a more complex and diverse reality. Companies may either highlight their ESG performance or obscure negative information. Public data openness (PDO) may provide a critical mechanism for regulating these strategic behaviors. This study aims to identify and regulate ESG strategic behaviors (ESG_SB) by examining the impact of PDO on ESG_SB. Design/methodology/approach To provide empirical evidence supporting the authors’ theoretical perspective, an empirical test is conducted based on the Multi-differences-in-differences model, using 15 years of data from Chinese listed companies. Findings PDO helps curb ESG_SB, with bank loans, institutional investment and corporate internal controls acting as partial mediators in this relationship. Heterogeneity analysis reveals that the restraining effect of PDO on ESG_SB varies across ownership structures, stages of the corporate lifecycle and market institutional environments. Additionally, financial constraints positively moderate the suppression of both greenwashing and brownwashing behaviors by PDO. The robustness of these findings is confirmed through variable substitution, model modification and outlier removal. Originality/value By systematically revealing whether, how and under what circumstances PDO curbs firms’ ESG_SB, this study provides important insights for regulatory authorities aiming to improve ESG information disclosure systems and promote collaboration between government and enterprises in advancing ESG development.

This article adds to the growing body of knowledge on the impact of non-financial environmental, social and governance (ESG) factors on long-term financial returns and investigates whether high portfolio ESG improves the quality of equity portfolios in terms of realized returns and risk. A best-in-class positive ESG screening method was deployed using Refinitiv ESG Scores to construct two polarised sets of portfolios, each with three portfolio ESG weightings (i.e., equal, value, and rank weightings). Fifteen years of daily returns from 2005 to end-2019 were analysed for the European continent split into seven regions based on the currency of exchange. Additionally, 2020, the abnormal COVID-19 year, was analysed as an acid test of the ESG alpha hypothesis. Overall, the tests offer empirical evidence that high portfolio ESG has the potential to enhance returns and/or reduce volatility over the long term and thereby improve the quality of portfolios. This evidence signifies the impact of the degree of equity portfolio ESG on performance. The Eurozone was a major exception to the test findings, as were the value weightings. Equal weighting stood out as the most coherent strategy for best-in-class positive ESG screened portfolios, both in terms of volatility and returns. Fama–French modelling yielded interesting region-specific insights for best-in-class positive ESG screening. The UK stood out as the most favourable region for beating the market with best-in-class positive ESG screening in the long run and passed the acid test of ESG outperformance during the identified black swan event for all three portfolio weightings in the short term.

PurposeThis paper aims to examine the relationship between environmental, social and governance (ESG) performance and systemic risk sensitivity of Chinese listed companies. From the consumer loyalty and investor structure perspectives, the relationship between ESG performance and systemic risk sensitivity is analyzed.Design/methodology/approachSince Morgan Stanley Capital International (MSCI) ESG officially began to analyze and track China A-shares from 2018, 275 listed companies in the SynTao Green ESG testing list for 2015–2021 are selected as the initial model. To measure the systematic risk sensitivity, this study uses the beta coefficient, from capital asset pricing model (CPAM), employing statistics and data (STATA) software.FindingsThe study reveals that high ESG rating companies have high corresponding consumer loyalty and healthy trading structure of institutional investors, thereby the systemic risk sensitivity is lower. This paper reveals that companies with high ESG rating are significantly less sensitive to systemic risk than those with low ESG rating. At the same time, ESG has a weaker impact on the systemic risk of high-cap companies than low-cap companies.Practical implicationsThe study helps the companies understand the influence of market value on the relationship between ESG performance and systemic risk sensitivity. Moreover, this paper explains explicitly why ESG performance insulates a firm’s stock from market downturns with the lens of consumer loyalty theory and investor structure theory.Originality/valueThe paper provides new insights on the company’s ESG performance that significantly affects the company’s systemic risk sensitivity.

PurposeThis research explores the spillovers and portfolio implications for green bonds and environmental, social and governance (ESG) assets in the context of the rapidly expanding trend in green finance investments and the need for a green recovery in the post-COVID-19 era.Design/methodology/approachThis study utilizes Diebold and Yilmaz’s (2014) spillover method and portfolio strategies (hedge ratio, optimal weights and hedging effectiveness) for the data starting from February 29, 2012, to March 14, 2022.FindingsThe study’s findings reveal that the lower volatility spillover is evidenced between the green bonds and ESG stocks during tranquil and turbulent periods (e.g. COVID-19 and Russia-Ukraine War). Furthermore, hedging costs are lower both in normal times and during economic slumps. Investing the bulk of the funds in green bonds makes it possible to achieve maximum hedging effectiveness between the S&P green bond (GB) and the S&P 500 ESG.Practical implicationsBoth investors and policymakers may use these findings to make wise investment and policy choices to achieve post-COVID environmental sustainability.Originality/valueUnlike previous research, this is the first to explore the interconnectedness among the major global and country-specific green bonds and ESG assets. The major findings of this study about the lower volatility spillovers and hedging costs between green bonds and ESG assets during the tranquil and turbulent periods may contribute to the post-COVID investment portfolio for environmental sustainability.

Against the backdrop of the deepening global sustainability concept, ESG (Environmental, Social, and Governance) has transcended the boundaries of traditional corporate social responsibility, evolving into a core analytical tool for assessing a company's long-term value creation capacity and sustainable development efficacy. To explore the impact of listed companies' ESG performance on corporate value, this study adopts a risk premium perspective, utilizing data from China's A-share market between June 2019 and December 2024, along with the ESG evaluation system of the China Securities Index Co., Ltd. and the CSMAR database. It conducts an in-depth analysis of the risk premium characteristics of listed companies' ESG performance. By employing empirical methods such as univariate portfolio analysis and panel regression models, while controlling for industry and time fixed effects, the study verifies the existence of ESG risk premiums in China's A-share market. The empirical results reveal that companies with superior ESG performance exhibit lower stock return premiums. Further analysis indicates that this risk premium primarily stems from the reduced environmental, policy, and reputational risks associated with high ESG performers, leading to correspondingly lower risk compensation demanded by investors.

PurposeThis paper aims to examine the relationships among environmental, social and governance (ESG) practices, innovation and economic growth in five Asian countries from 1990 to 2020.Design/methodology/approachThe study innovatively constructed the ESG index at the country level by using frequency statistics on text mining and factor analysis for each country over time. In addition, this study used the autoregressive distributed lag method to establish a long-term relationship.FindingsThe authors discovered that ESG practices among corporate entities significantly impact economic growth in Malaysia, the Philippines and Singapore. Specifically, the environmental component positively affects the growth of Malaysia, Thailand and the Philippines, while the governance components of ESG contribute to Thailand’s economic growth. The authors also discovered that innovation improves countries’ economic growth, thus offering policy insights into promoting ESG practices and stimulating the ecosystem for innovation.Originality/valueThe paper fills the gap left in previous inconclusive findings on the association between ESG practices and country growth.

PurposeThis study aims to examine the moderating impact of audit quality (AQ) on the relationship between environmental, social and governance (ESG) disclosure and financial performance (FP) in the Indian context.Design/methodology/approachThe study sample consists of 218 Indian firms, for which Credit Rating Information Services of India Limited has published the ESG scores. Panel data estimation technique is used to examine the direct and moderating impacts. Furthermore, the two-stage least square estimation technique is used for robustness checks.FindingsThe study finds a positive impact of ESG score and its components on FP. The findings support the positive “revisionist” hypothesis. The results demonstrate that AQ significantly moderates the relationship between ESG scores and FP. It implies that the impact of ESG disclosure on FP is considerably greater for the Big-4.Originality/valueThe study enriches the existing knowledge by providing empirical evidence on the moderating role of AQ on the ESG disclosure and FP relationship. The findings have several policy implications.

PurposeThis study investigated the impacts of the environment, social and governance (ESG) and its components on global bank profitability considering the COVID-19 outbreak.Design/methodology/approachThis study used a system generalized method of moments (GMM) proposed by Arellano and Bover (1995) to investigate the relationship between ESG and bank profitability using an unbalanced sample of 487 banks from 51 countries from 2006 to 2021.FindingsThe findings generally found that ESG activities may reduce bank profitability, thus supporting the trade-off hypothesis that adopting ESG standards could increase bank costs while lowering profitability. In addition, there is a U-shaped relationship between ESG and bank profitability, suggesting that ESG activities can help improve bank performance in the long term. Such an effect is the first time observed in the global banking sector. This study’s results are robust across different models and settings (e.g., developed vs. developing countries, different levels of profitability, and samples with vs without US banks).Practical implicationsThis study provides empirical evidence to support many countries' sustainable development policies. It also provides empirical incentives for bank managers to be more ESG-oriented.Originality/valueThis study provides a better understanding of the roles of ESG activity and its components in the global banking system, considering the recent crises.

Purpose This study aims to analyze the implementation and effects of environmental, social and governance (ESG) principles in the business strategy of Wardah Halal Cosmetics, exploring the synergy between halal certification and sustainable business practices. Design/methodology/approach This study uses a case study analysis of Wardah with quantitative data assessment to provide a holistic view of ESG integration in halal cosmetics, incorporating Monte Carlo simulations and network analysis. Findings The quantitative analysis demonstrates that Wardah’s commitment to ESG principles leads to a 15% increase in brand reputation scores, a 12% rise in customer trust ratings and a 10% improvement in market competitiveness. The Monte Carlo simulations predict a 9% increase in market penetration and a 7% revenue growth in the Gulf Cooperation Council (GCC) market under higher levels of ESG commitment, with a stable cost structure. However, the Monte Carlo simulations highlight increased variability in outcomes, indicating the need for careful risk management and strategic adaptability. Additionally, the network analysis shows that key ESG components, such as environmental stewardship, social responsibility and community engagement, are highly interconnected. Research limitations/implications This research acknowledges the geographic and market-specific limitations of the study focus on Indonesia and the GCC region, suggesting the need for broader, cross-cultural research to generalize findings. Practical implications This research provides actionable strategies for halal cosmetic companies looking to incorporate ESG principles effectively, emphasizing the balance between ethical commitments and market demands. Social implications This research highlights the role of ethical business practices in promoting sustainability and social responsibility, underlining the potential of faith-based business models in leading industry-wide changes. Originality/value This study provides a unique quantitative assessment of how integrating ESG principles with halal business practices can yield measurable improvements in business performance, offering empirical evidence that corresponds religious ethics with modern governance standards.

Green finance has grown as a strategy in recent years for attaining sustainable development and resolving the tension between economic growth and climate change. Today, green bonds dominate the ESG (Environment, Social and Governance) themed bond market, and in this new era of green development, China's green bond market is becoming increasingly influential in the international arena. However, the development of green bonds in China is immature, and despite the existence of unified principles in policy this year, the Chinas green bond market is still relatively inactive compared to foreign countries, and the motivation of issuers and investors needs to be evoked. The PEST model is used to analyze the macro environment of a market or an enterprise, focusing on the four most influential external factors, namely Politics, Economy, Society and Technology, to analyze the macro environment of the Chinese green bond market. This paper therefore applies the PEST model to analyze the domestic green bond market environment and make recommendations for green bonds market in China to reach a higher level of development. By analyzing four major factors in the green bond market - political, economic, social and technological - this thesis is known to show that the current green bond policy tends to improve, the market is growing at a faster rate and the participation of private enterprises in society is low. Therefore, the analysis of the green bond market gives difficulties faced by the advancement and the ways to solve them.

Purpose : There has been a significant increase in the demand for ESG (environmental, social, and governance) investment by investors in recent years. Investors are recognizing that companies that prioritize ESG factors in their operations are more likely to be sustainable and resilient in the long term. The purpose of this study was to examine whether the ESG-responsible firms are performing better than the other firms in the pre-COVID and during the COVID periods. The paper also tried to investigate the impact of COVID-19 cases on the index movement. Methodology : The study employed the descriptive analysis on the financial data of NSE NIFTY 500 and NIFTY 100 Enhanced ESG index. The EGARCH model was applied to estimate the effect of COVID-19 on the volatility of the NIFTY 100 Enhanced ESG index. Findings : The results showed that there was no leverage effect in the ESG index in both periods. That means that the ESG Index can act as a cushion during the pandemic period. The ESG Index outperformed the conventional market index, thus acting as a COVID-19 safe asset class. This gives an opportunity to investors and fund managers to diversify their risk by acting sustainably responsible for society. Practical Implications : This study compared the performance of ESG-indexed firms with that of other firms in the pre-COVID and during COVID time period to check whether there was any difference between them. This study provided empirical evidence for practitioners, policymakers, and academicians in support of ESG investment as it showed that the ESG Index performed better than the conventional index during the COVID period. Originality : This study used secondary data to study the performance of the EGS firms in the pre and during COVID period in order to compare with the other firms. In the context of India, this study may be the first one to compare the performance of the ESG firms with the normal firms in the pre and during the COVID period.

Interest in why firms conduct environmental, social and governance (ESG) activity is longstanding and increasing. Our understanding, however, remains fragmented with alternative accounts that seek to explain the relationship between ESG performance (ESGP) and corporate financial performance (CFP). This paper reviews alternative accounts for the relationship and finds that the weight of empirical evidence shows a positive, statistically significant but economically modest ESGP–CFP link, consistent with theoretical expectations. This economically modest relationship suggests ESG activity is unlikely to be primarily motivated by narrow measures of CFP. Further scholarship viewing ESG as part of overall firm activity would be constructive.

Purpose This study first assesses the significant potential relationships between environmental, social and governance (ESG) performance (ESGP), sustainable products (SUPR) and their outcomes [i.e. audit fees (AUFE), salaries and wages of sustainability committee members (SWSM) and total training costs (TTC)] in the context of developed countries. More deeply, the presence of a sustainability committee (SUSC) is considered as the moderating component for some relationships in the research model. Design/methodology/approach The research sample of 1,086 listed companies from G7 countries was selected during the period 2014–2023. The maximum likelihood structural equation modeling approach was used to assess the complex relationships between the research variables. The authors used a two-stage evaluation method consisting of testing (70% of sample) and validation (30% of sample) to examine the optimality of the variables in the research model. Findings The combined results from the two phases showed that all four SUPR types had a direct positive impact on ESGP. ESGP showed an additional mediating role in the relationship between the four SUPR types and their outcomes (i.e., AUFE, SWSM and TTC). In addition, SUSC showed a significant moderating role on the SUPR–ESGP nexus and the ESGP–AUFE nexus. However, the study results did not record the moderating effect of SUSC on the SUPR–AUFE nexus. Research limitations/implications This study emphasizes the need for holistic strategies that integrate sustainability across all business operations. This requires companies to move beyond superficial greenwashing and adopt genuine ethical practices. Our paper confirms the increasing scrutiny on ESG factors, leading to lower AUFE and higher SWSM or TTC for companies engaging in sustainable practices. However, it also suggests that robust sustainability committees can mitigate this cost increase by ensuring transparency and effective ESG implementation. Companies must view sustainability as an investment, understanding the value of dedicated committees in navigating the complexities of ESG reporting and reaping its potential financial and reputational benefits. Originality/value This paper presents a compelling case for proactive sustainability governance. This study serves as a crucial roadmap for businesses striving to balance the scales of profitability and responsible business conduct.