ESG ratings and corporate financial performance in South Africa

Emmerson Chininga, Abdul Latif Alhassan and Bomikazi Zeka

Journal of Accounting in Emerging Economies, 2023, vol. 14, issue 3, 692-713

Abstract: Purpose - This paper examines the effect of ESG ratings and its dimensions (environmental, social and governance) on the financial performance of JSE-listed firms included in FTSE/JSE Responsible Investment Index. Design/methodology/approach - The paper employs panel data covering 40 JSE-listed firms included in FTSE/JSE Responsible Investment Index between 2015 and 2019. The paper employs the two-stage least squares (2SLS) instrumental variable regression technique to estimate the effect of ESG ratings and its dimensions (environmental, social and governance) on both accounting- and market-based performance indicators. Findings - The results of the two-stage least squares instrumental estimation analysis reveal that investment in ESG initiatives improves both accounting- and market-based indicators of financial performance. Of the ESG pillars, the paper finds environmental initiatives improves firms' financial bottom line and market performance, while a firm's social and governance practices are observed to have no effect on a firm's accounting and market performance measures. Practical implications - The insights from this study proffers policy implications for firms' management, investors and regulatory authorities. Originality/value - As far as the authors are concerned, this paper presents the first empirical analysis on the contribution of ESG ratings on financial performance in South Africa.

Keywords: ESG; Financial performance; JSE; South Africa (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jaeepp:jaee-03-2023-0072

DOI: 10.1108/JAEE-03-2023-0072

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