An empirical investigation of corporate Environmental, Social and Governance (ESG) reporting

Environmental, Social, and Governance (ESG) sustainability is gaining increased attention and significance within the corporate sector. This has led to a paradigm shift in focus from financial statements to non-financial disclosures aimed at satisfying stakeholders and maintaining corporate legitimacy. Hence, the ESG disclosure score, a measure of quantity, and ESG performance, a measure of quality, are two inevitable aspects that companies must address to ensure their survival in the industry in this dynamic competitive world. This thesis entitled "An empirical investigation of corporate ESG reporting" aims to explore the causes and consequences of firms' ESG performance and ESG disclosure, with a specific focus on firm performance (causes) and conference call tone (consequences). The research adopts a quantitative and deductive approach, structured into three parts: a Systematic Literature Review (SLR) and two empirical studies utilizing quantitative methodology. Research hypotheses are developed based on existing literature and theoretical frameworks identified through the SLR. The first part of this study is an SLR entitled "Corporate Sustainability Reporting: A Systematic Literature Review" that examines key research themes related to ESG within the sustainability reporting literature. The SLR employs a three-step methodology, encompassing sampling, reviewing, and analysing research articles from internationally recognized peer reviewed academic journals following Chartered Association of Business Schools' (CABS) Academic Journal Guide 2021. The analysis includes 443 articles from 75 journals, covering publication trends from 2000 to 2022. This review provides a comprehensive overview of corporate sustainability reporting, emphasizing key research themes, theoretical frameworks, research methodologies, determinants and consequences of ESG, and ESG measurement approaches. The findings reveal a significant increase in ESG related publications, particularly in the last five years, with 54 articles published in 2022 alone. Legitimacy theory and stakeholder theory dominate theoretical discussions, with most studies focusing on developed market contexts. Additionally, the review highlights that the majority of studies explore the relationship between ESG practices, firm value, and performance. It also identifies measurement inconsistencies in ESG research, as different rating agencies use varying criteria for ESG scores. The study concludes by identifying gaps in corporate sustainability reporting literature and highlighting potential directions for future research. Part two of the thesis entitled "Firm performance, ESG performance and ESG disclosure: An empirical analysis of middle- and high-income level countries" investigates the relationship between firm performance, ESG performance, and ESG disclosure using a global sample of middle- and high-income countries. A panel dataset comprising 7,712 firms across 86 countries from 2009 to 2022 is analysed. ESG performance (quality) is measured using Refinitiv, while ESG disclosure (quantity) is measured using Bloomberg. Firm performance is assessed using two metrics: earnings per share (EPS) as an accounting-based measure and the price-earnings ratio (P/E) as a market-based measure. Random-effect panel data models are employed to test causal relationships, controlling for firm-specific and macroeconomic factors, as well as year and industry variations. Additionally, the system generalized methods of moments (SYS-GMM) model is used to address endogeneity concerns and enhance robustness. The findings indicate that earnings per share positively and significantly influence ESG performance and disclosure scores across the Environmental, Social, and Governance pillars. Similarly, the price-earnings ratio positively impacts ESG performance scores. These results support the resource-based theory, suggesting that more profitable firms allocate greater resources to ESG activities, resulting in enhanced ESG disclosure and performance. This study contributes to the existing literature by analysing a comprehensive global sample and offering a comparative evaluation of ESG performance and ESG disclosure in relation to both accounting and market-based performance metrics. The findings highlight the critical role of profitability in ESG practices and underscore the need for government support to encourage ESG activities among less-established firms. Such support could drive the transition toward carbon neutrality and reduce peak carbon emissions. The implications of these findings extend to fund managers, stakeholders, and regulators. Companies investing in ESG not only enhance their reputation and operational continuity but also mitigate risks associated with environmental regulations or societal backlash. The findings suggest that managers must recognize the financial performance influences ESG activities and balance ESG investments within budget constraints. Part three of the thesis entitled "The effect of ESG performance and ESG disclosure on tone: Evidence from conference calls of US firms" examines the impact of ESG performance and disclosure on the tone of conference calls for S&P 500 companies from 2013 to 2022. It addresses whether ESG factors significantly influence managerial tone during these calls. ESG disclosure (quantity) is measured using Bloomberg, ESG performance (quality) is measured using Refinitiv, and conference call tone is analysed using Diction software. The study employs random-effects panel data models and demonstrates that both ESG performance and disclosure positively affect managerial tone. These findings suggest reduced information asymmetry in companies excelling in ESG practices. Robustness checks, including alternative tone measures and endogeneity tests, confirm the reliability of the results. The study underscores the importance of ESG practices for CEOs and the influence of ESG reporting on corporate narrative communication. Investors and stakeholders seeking insights on the consequences of firm ESG practices may find this research particularly valuable. Understanding how ESG reporting impacts managerial tone will enables stakeholders to hold firms accountable for their ESG reporting and reach an informed investment decision.