ESG ratings and corporate financial performance in South Africa

Emmerson Chininga, Abdul Latif Alhassan, Bomikazi Zeka

Research output: Contribution to journalArticlepeer-review

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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.
Original languageEnglish
Pages (from-to)1-22
Number of pages22
JournalJournal of Accounting in Emerging Economies
DOIs
Publication statusPublished - 9 Aug 2023

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