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2022 | Book

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Climate Change Adaptation, Governance and New Issues of Value

Measuring the Impact of ESG Scores on CoE and Firm Performance

Editors: Carlo Bellavite Pellegrini, Laura Pellegrini, Massimo Catizone

Publisher: Springer International Publishing

Book Series : Palgrave Studies in Impact Finance

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Technik" , Springer Professional "Wirtschaft"

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About this book

This book investigates sustainability, CSR, climate change adaptation, the relevance of ESG scores and their impact on firm value and growth. The first part of the book analyses the topics from a conceptual angle. The authors discuss how the concepts of self-consciousness and awareness drive the shift of the traditional concept of corporate mission towards more sustainable business models. The authors propose an in-depth analysis of the main challenges posed by climate change and of the initial policy-makers’ responses and provide their view on the central role of ESG scores and circular economy for growth and development. The authors conclude with an analysis of the main literature on the measurement of the relation between ESG scores and firms’ performance and cost of equity (CoE). The second part of the book contains comparative empirical evidence, supporting these theories across specific industries, and will be of interest to academics, researchers, and students of sustainability and impact finance.

Table of Contents

Frontmatter

Climate Change challenge, CSR and ESG Issues: The State of the Art

Frontmatter
Chapter 1. Introduction
Abstract
A large growing literature is nowadays investigating the main drivers of investors decisions and corporate strategies. In order to appreciate what is a sustainable, value-creating investment strategy or business re-assessment is required. The traditional elements driving evolution and adaptation as pre-requisites for long-term sustainability and profitability have been brought into question. Is corporate evolution determined by competition or consciousness of purpose? Which is the impact? The book proposes a theoretical and empirical approach, firstly analyzing the main theoretical and institutional features, then providing a comparative assessment over the last twenty years and through different industries worldwide. The empirical analysis will aim to point out how ESG Score impacts firm value e growth highlighting significant differences at sector level and geographical as well.
Carlo Bellavite Pellegrini
Chapter 2. Self-Consciousness and Awareness as Adaptation Enablers
Abstract
The idea of a free and not finite environment is fundamentally incorrect. Firms failing to implement effective adaptation strategies would consume natural capital at the expense of other stakeholders. Corporations have a responsibility and an interest to preserve natural capital. The traditional concept of corporate mission should be reassessed assuming that firms are defined by self-consciousness and consciousness. Consciousness generally involves the perception of the physical environment based on knowledge and experience. Self-consciousness involves the perception of being physically distinct from a surrounding ecosystem. Self-consciousness is therefore an essential pre-requisite for a firm to define its mission and long-term vision and position itself relative to its ecosystem. Self-consciousness should enable firms to engage with purpose and create value for the entire stakeholders base.
Massimo Catizone
Chapter 3. Climate Change Challenges and the Policymakers Initial Response
Abstract
Our concept of the planet, its resources and ESG issues is often conflictual. Sometimes, there is no consensus on the magnitude of climate change-related risks and how should it be mitigated and managed. The value added by ESG indicators has only recently started to feature in corporate and investment strategies and financial regulation. The international regulatory framework aimed to regulate the Climate Change Ecosystem can be based on different approaches. The starting point of our approach is that the transition to a greener, circular and sustainable economy can be achieved only if sufficient capital is allocated to sustainable initiatives. In this chapter we provide an overview of the main components of the regulatory framework supporting the transition towards a more resilient and sustainable economy.
Massimo Catizone
Chapter 4. SRI, ESG and Value of Sustainability
Abstract
The concept of acting in a responsible way in finance has taken different patterns through the years. Over the last decades, greater attention to the ESG issues and sustainability has been paid by mainstream investment institutions. Starting from Davis (Academy of Management Journal 16:312–322, 1973) and Friedman (The New York times Magazine 13:32–33, 1970), many rules of the game have changed. Although corporate finance has historically researched about the determinants of stock and bonds returns and modelling future yields, recently the corporate governance has focused on the impact of non-financial information on corporate financial performance. Therefore, this chapter examines the most relevant “new frontiers issues” of corporate governance and finance issues as CSR, ESG indexes and the value of sustainability, pointing out risks and opportunities faced by companies and allowing enhanced security selection and risk management.
Laura Pellegrini
Chapter 5. Consortium Company, Circular Economy and ESG: The Comieco Case Study
Abstract
This Chapter deepens the story of Comieco, an Italian case of circular economy. Comieco is the Consortium of the paper supply chain for the recycling of paper and cardboard and is part of the Conai (the national Packaging Consortium). Initially, Comieco provided a service only for consortium members, while today it plays a role of public interest keeping the legal personality of private law. Specifically, Comieco is committed to (a) environmental protection (according to EU regulations); (b) the economic operation of the whole cellulosic-based packaging chain and (c) the competitiveness of the consortium companies. The consortium system has determined the introduction of different innovations in Italy allowing the supply chain to embark on a path towards the circular economy capable to regulate the relationships between ESG issues.
Carlo Montalbetti
Chapter 6. Environmental, Social, and Governance Issues: An Empirical Literature Review Around the World
Abstract
This chapter examines the different strands of literature about ESG factors. First studies on the relationship between financial performances and ESG factors can be traced back to the beginning of the 1970s. However, the increasing attention of investors has prompted the academic literature to investigate the ESG impact at financial and corporate levels. Starting with a new paradigm of company able to embrace contemporary economic dimension together with environmental and social ones, we deepen the main contributions on ESG issues. Therefore, we introduce firstly studies that attempted to assess how ESG factors can impact the cost of capital, both equity and debt, and Firms’ Performance. Finally, we consider financial studies which have attempted to identify the benefits related to ESG investment choices.
Claudia Cannas, Maurizio Dallocchio, Laura Pellegrini

ESG, Cost of Equity and Firm’ Performance: Empirical Evidences Across Industries Around the World

Frontmatter
Chapter 7. ESG, COE and Profitability in the Oil and Gas Sector
Abstract
This chapter empirically explores Oil and Gas sector, trying to investigate the effect of ESG Scores on (1) Cost of equity (COE) and (2) Firm’s profitability (FP) for a sample of operating firms. We focus on a panel of data composed of more than 100 public firms, from 2002 to 2018/2019, and the main variables of interest are (1) The Implied Cost of Equity and (2) Return on Assets (ROA). We propose a dichotomic analysis with different aims of research: in the first analysis we try to estimate the firms’ ex-ante cost of equity adopting Easton Model, which expresses the share price in terms of one-year-ahead expected dividend per share and one- and two-year-ahead expected earnings per share. For the second analysis instead, we consider Return on Assets as a proxy for a firm’s profitability.
Carlo Bellavite Pellegrini, Raul Caruso, Marco Seracini
Chapter 8. Automotive and Tire Sector: Sustainability as the New “Value” for Shareholders
Abstract
This chapter analyses the impact of ESG scores on firms’ profitability in the automotive sector between 2002 and 2016 for a novel dataset of European and North American listed firms. Results show that the environmental component of the ESG scores is positively associated with firms’ profitability. Among the components of overall ESG, the environmental score is the only one that exhibits the most robust association. Eventually when considering firm value proxied by means of Tobin’s Q, results show a negative association between the Tobin’s Q and the environmental component of ESG. Further estimations have highlighted a more nuanced evidence in particular with regard to profitability in terms of ROA.
Carlo Bellavite Pellegrini, Raul Caruso, Rocco Cifone
Chapter 9. How Much Does Matter ESG Ratings in Big Pharma Firms Performances?
Abstract
Given the peculiarities of the pharmaceutical sector and its wide exposure to ESG factors, this chapter aims to verify the possible presence and the strength of a relationship between firms ESG scores and their economic-financial performance. We consider a benchmark sample of 103 pharmaceutical companies listed around the world, exhibiting ESG scores from 2004 to 2018. Firstly, results showed that the governance score has a negative impact on ROA and a positive impact on Tobin's Q. Secondly, considering the firm size, all the ESG scores on which research hypotheses were tested gain statistical significance. In particular, for smaller pharmaceutical companies, both the governance and controversies score have a negative impact on ROA. While, as the firm size grows, the controversies score has a positive impact on both ROA and Tobin's Q. Finally, there is an inverted U-shaped non-linear relationship between ESG scores and Tobin’s Q.
Sophia Veronica Barbieri, Laura Pellegrini
Chapter 10. Corporate Green Bond: Issuance and Equity Market Reaction
Abstract
This chapter focuses on corporate green bond, an innovative financial instrument for climate and environmental financing. An empirical analysis has been developed in order to investigate stock market reaction to a company’s announcement of corporate green bond issuance. This study takes into consideration a dataset of corporate green bonds issued by European public firms starting from January 1, 2013, to December 31, 2019. Specifically, results show a positive and significant stock price reaction to corporate green bond issuance announcement. The overall price increase corresponds to a cumulative average abnormal return value of 0.41%. This first empirical evidence has been confirmed through a regression model resulting in the green label variable being positive and statistically significant. This analysis contributes to the existing literature providing empirical evidence on the efficiency of green bonds as they generate a positive impact on the environment and also have a positive effect on corporate financial performance.
Rachele Camacci
Chapter 11. The Sustainability Challenge for Asian Emerging Markets: Some Empirical Evidences
Abstract
The intense protests against economic globalization and accusations pointed towards companies’ actions of the twentieth century have highlighted the existence of a real sustainability challenge for emerging markets. Adopting a sustainable approach able to take into account ESG aspects seems to be essential for emerging economies. However, the path of sustainable development has been slower for emerging markets than for developed countries.
In this chapter, I have attempted to analyse the existence of a sustainable development path for Asian Emerging Markets. Over the last decade, investors have shown increasing attention to these markets. However, the huge growth of the Asian economy can be traced not only to developed countries but especially to the rapid development that has characterized emerging markets. In line with previous economic literature on the relationship between ESG factors and Firms’ Performance, the existence of a positive effect by introduction of ESG practices and policies has been tested from an empirical point of view. In particular, the main areas of sustainability action for emerging economies seem to be the development of environmental and social processes. However, even though governance is mainly a crucial challenge in these economies, efforts to develop good governance practices seem to be rewarded in the long run. In this context, the role of government is really important to support a tangible commitment to the implementation of ESG practices in Asian Emerging Markets which could represent a win-win to both companies and the entire environment in which they operate.
Claudia Cannas
Backmatter
Metadata
Title
Climate Change Adaptation, Governance and New Issues of Value
Editors
Carlo Bellavite Pellegrini
Laura Pellegrini
Massimo Catizone
Copyright Year
2022
Electronic ISBN
978-3-030-90115-8
Print ISBN
978-3-030-90114-1
DOI
https://doi.org/10.1007/978-3-030-90115-8

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