Modeling the link between environmental, social, and governance disclosures and scores: the case of publicly traded companies in the Borsa Istanbul Sustainability Index

Mustafa Tevfik Kartal (), Serpil Kılıç Depren (), Uğur Pata (), Dilvin Taşkın () and Tuba Şavlı ()
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Mustafa Tevfik Kartal: European University of Lefke
Serpil Kılıç Depren: Yildiz Technical University
Dilvin Taşkın: Yaşar University
Tuba Şavlı: Yeditepe University

Financial Innovation, 2024, vol. 10, issue 1, 1-20

Abstract: Abstract This study constructs a proposed model to investigate the link between environmental, social, and governance (ESG) disclosures and ESG scores for publicly traded companies in the Borsa Istanbul Sustainability (XUSRD) index. In this context, this study considers 66 companies, examining recently structured ESG disclosures for 2022 that were published for the first time as novel data and applying a multilayer perceptron (MLP) artificial neural network algorithm. The relevant results are fourfold. (1) The MLP algorithm has explanatory power (i.e., R2) of 79% in estimating companies’ ESG scores. (2) Common, environment, social, and governance pillars have respective weights of 21.04%, 44.87%, 30.34%, and 3.74% in total ESG scores. (3) The absolute and relative significance of each ESG reporting principle for companies’ ESG scores varies. (4) According to absolute and relative significance, the most effective ESG principle is the common principle, followed by social and environmental principles, whereas governance principles have less significance. Overall, the results demonstrate that applying a linear approach to complete deficient ESG disclosures is inefficient for increasing companies’ ESG scores; instead, companies should focus on the ESG principles that have the highest relative significance. The findings of this study contribute to the literature by defining the most significant ESG principles for stimulating the ESG scores of companies in the XUSRD index.

Keywords: ESG disclosures; ESG scores; New ESG reporting scheme; Artificial neural network; Borsa Istanbul Sustainability Index; Türkiye (search for similar items in EconPapers)
JEL-codes: C45 G34 G38 M48 O16 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1186/s40854-024-00619-1

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