MSc Thesis by J.P.C. van Huijgevoort (Universiteit van Tilburg)
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Article
MSc thesis: The relationship between ESG-factors and the corporate financial performance
This study examines how environmental, social and governance (ESG) performance is related to the financial performance of a firm. Although the large amount of previous research a consensus is still not found. This study contributes to this discussion by focussing on small capitalisation firms located in Europe. An empirical analysis consisting of three stages is used to determine if and what factors of ESG have an effect on the corporate financial performance of European small capitalization firms. The results of the first stage indicate a positive effect of the ESG-rating on corporate financial performance. In contrast to this, the second stage analysis provide mixed results. For the subgroup governance performance a positive relation is found while environmental performance has a negative effect on Tobin’s q. Consistent with the second stage the third stage analysis provide mixed results. An increase in the performance of the sub drivers board function and compensation policy results in an increase of corporate financial performance while product innovation and human rights are negatively related with corporate financial performance. Finally, the empirical analysis provides evidence for the moderating effect of firm size on the relationship between ESG and corporate financial performance. The instrumental variable approach is used to overcome existing endogeneity concerns.
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Article
MSc thesis: The impact of ESG sustainability scores on the firms access to bank loans
This thesis investigates the impact of ESG performance score of the companies in their ability to access
loans from banks. The data used in this analysis is based on 4828 deals lent to 1645 US companies
during the period of 2006-2016. For the accuracy of the results, the data was separated into the strength
and concern factors based on each variable. They indicate whether the company has reported positive
or negative performance for each E, S and G factors respectively. The extended regression analysis of
the paper concludes that banks are more likely to give larger loans to the companies with higher strength
scores, rather than those with lower strength scores. Furthermore, in terms of interest spreads charged
on the loans, it was revealed that the bad performing companies in terms of social concern scores are
more likely to be charged higher prices on their debts. For E and G factors a weak evidence of this
relationship was found as well.Author: Tukaz Ahmadova.
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Article
MSc thesis: Environment, Social and Governance (ESG) reporting: shift from compliance to commitment.
The background to this research is the directive 2014/95/ EU on disclosure of non-financial information and the principle of the United Nations Principles of Responsible Investment (UNPRI) both demanding ESG disclosure. According to Tähtinen (2018), long-term value creation by the companies are not fully addressed in the current sustainability or annual reports of the firms. Plastic being the major global concern over climate change, stakeholders demand sustainable packaging, and long-term value creation process through ESG disclosure. Preliminary research was conducted on ESG disclosure in the consumer goods packaging sector and the market response in the Netherlands to support the construction of a research perspective. This study focuses on determining the key determinants of ESG disclosure in the creation of long-term business value for consumer goods packaging companies. First, content analysis was performed to study the sustainability reports of the six global companies on their long-term value creation process and methods adopted using the concepts of integrated value creation process theory. Later, through semi-structured interviews with ESG practitioners in the Netherlands, the findings were validated for credibility and reliability. Primary data was sourced from stakeholder interviews, while secondary data was retrieved from databases, academic journals, government reports, and guidelines. Overall, consistently with the literature, the results indicate that a strong business strategy integrated with ESG across the value chain, along with a multi-stakeholder and commitment-driven approach is critical in creating long-term business value. Finally, to create long-term business value through ESG reporting by moving beyond compliance-driven strategy, it is strongly recommended to reporting practitioners, sustainability leaders, policymakers of consumer goods packaging companies to implement all the key determinants of ESG reporting identified in this study.
Author: Brindha Prakash
Faculty of Behavioural, Management and Social Sciences (BMS). MSc Environmental and Energy Management.
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Article
BSc thesis - The evolution of ESG reporting
Background: The demand for ESG reporting has increased significantly in recent years. Simultaneously, in 2016, ESG reporting was implemented in the annual accounts act as a mandatory part. Consequently, ESG reporting has increased and gained focus from larger organizations. Stakeholder and shareholder theory are two main theoretical concepts that can explain and help portray the reporting of ESG. Recent developments have raised questions regarding how the information should be reported and targeted to whom.
Purpose: This thesis aims to investigate how the top four banks in Sweden are portraying their ESG reporting. The study will analyze if the portrayal of ESG is biased toward any specific stakeholders.
Method: The method used in this thesis combines quantitative and qualitative methods, as the authors found it most suitable to achieve the most thorough results. Interviews represents the qualitative method, and the coding of annual reports represents the quantitative method. Additionally, the thesis is built upon an abductive approach that enables the authors to alter between theory and empery, allowing the understanding to emerge along with the thesis. Ultimately, the mixed method and abductive approach produced the best conditions to fulfill the purpose.
Findings: Even though theory suggests that the leading banks in Sweden should be able to achieve maximal satisfaction among all stakeholders simultaneously, it seems unrealistic to do so in reality. However, reaching maximal satisfaction is still the main goal for the banks, as stakeholder theory also suggests. The second finding is the presence of stakeholder pressure when portraying ESG reporting among the leading banks in Sweden. The report shows that the banks will act in stakeholders' interests when exposed to pressure from internal and external stakeholders. A more general finding is the dominance of stakeholder theory in ESG reporting amongst the leading banks in Sweden. Over the last years, the reporting towards stakeholders has increased significantly, while shareholder-targeted reporting has remained stable. However, it is still worth mentioning that the assumption of shareholder theory still somewhat holds.
Keywords: Reporting, ESG, Shareholder theory, Stakeholder theory, Nordea, Swedbank, Handelsbanken, SEB, BankingSource: David, P., Lidbeck, L., & Wahlgren, R. (2023). The evolution of ESG reporting: A case study of Sweden's leading banks. (BSc thesis: Business Administration. Jönköping International Business School, June 2023)
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Article
MSc thesis - To what extent do ESG scores affect firm valuation?
The purpose of this study is to research the impact of environmental, social and governance performance (ESG), divided in each component and evaluate the impact on firm valuation. The study covers a sample selection of companies listed on the Amsterdam Exchange Index (AEX) and Amsterdam Midcap Index (AMX) for the years 2018-2020. A correlation and regression analysis have been carries out to evaluate the possible impact of ESG scores and firm valuation. Data has been gathered by the Asset4 database of Thomson Reuters. The results of this study show higher social score negatively impacting firm valuation. Indicating firm in the Netherlands to be over-invested in the social dimension. There is no significant relationship between environmental score and firm valuation within the sample, environmental scores are embedded in firm valuations. The governance dimension has no effect on firm valuation, because it is difficult to quantify qualitative governance measurements. This study cannot reveal a relationship between ESG controversies and firm valuation. All of the ESG dimensions show significant relationships with firm size, indicating large firms to be more invested in ESG scores. This analysis contributes to the empirical corporate social responsibility (CSR) research. Not only management of the firms but also regulators and researchers are affected by the results. The results state not all investments in ESG performances to be beneficial for economic performances.
Source: Oddo, R. (2022). To what extent do ESG scores affect firm valuation?: Evidence based on large Dutch enterprises (Master's thesis, University of Twente).
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Article
MSc thesis - ESG scores and stock price returns
The growing interest in sustainable business practices has fostered the rise of attention paid to environmental, social and governance (ESG) scores companies receive. The spark in interest has led to a large body of literature on the impact of the scores on companies’ financial performance, share prices and returns, with mixed results across regions, countries, and industries. Therefore, this thesis aims to find the impact social, environmental, and governance scores have on expected share price returns in the Netherlands. To answer the research question, ESG and financial data from Refinitiv Eikon is collected for a sample of 44 companies listed on Euronext Amsterdam, over the period between 2018 to 2020. The analysis is done by using panel data regressions with fixed time and firm effects, with robust standard errors and a Wald test. The results indicate, when not accounting for the risk, social and ESG scores negatively affect expected share price returns. Meanwhile, environmental and governance scores seem to have a positive impact on the expected returns. Thus, this thesis informs investors about the impact ESG scores have on the returns they may receive. It further informs investors about the dangers and consequences of the tilting of ESG reporting. Lastly, it informs companies about how their investments and performance in environmental, social, and governance activities impact their cashflows and their public perception.
Source: Spirova, T. (2023). ESG scores and stock price returns: How do ESG scores impact stock price returns in the Netherlands (Master's thesis, Behavioural Management and Social Sciences (BMS), University of Twente).