The ESG Framework and the Energy Industry

This paper analyzes the causal relationship between ESG and economic growth for CIS member states over the sample period 1996–2020. Since the results of the varied panel stationarity tests suggest mixed findings on the order of integration, the ARDL model is employed to determine the co-integration relation among the series. The result of the VEC model, which is estimated to explore the long-run and short-run dynamics of this casual relation between the series in a basic way, suggests that there is a causal relationship running from income level to ESG criteria. This implies that the adaptation of macroeconomic policies which will stimulate the economic growth process in CIS countries may also encourage the ESG indicator levels of the economy.

Energy Poverty refers to the lack of access to modern energy services necessary for a decent standard of living, including access to electricity, clean cooking facilities, and reliable heating and cooling systems. This study examines the macroeconomic factors influencing Energy Poverty in Türkiye between December 2009 and August 2022 with the ARDL model. The research sheds light on the determinants of Energy Poverty in Türkiye, highlighting the role of economic growth, industrial production, and oil prices. The policy implications derived from these findings can support the design and implementation of targeted policies and interventions aimed at alleviating Energy Poverty and promoting sustainable, inclusive economic growth.

This chapter studies the energy situation and the development of CO₂ emissions in Türkiye. Türkiye is of interest here, as it has a high economic growth potential, and it is still possible to achieve the growth targets with reduced carbon emissions. Factors that explain the increase in CO₂ emissions are derived by undertaking a complete decomposition analysis for Türkiye over the period 1987–2018. The analysis shows, as is common to relatively fast-growing economies, that the main contributor to the rise in CO₂ emissions is the expansion of the economy (scale effect). The carbon intensity and the change in composition of the economy, also contribute to the rise in CO₂ emissions, but much less. Moreover, the carbon intensity has started to decrease in the 2010–2018 period. The energy intensity of the economy, which is decreasing at an accelerating rate after 2000, is responsible for a significant reduction in CO₂ emissions. A regression analysis with the data shows that a process of decoupling both carbon emissions and energy consumption with respect to economic growth has started in Türkiye over the period 1987–2018, indicating both an environmental and an energy Kuznets curve. Hence, economic growth is possible both without environmental degradation in terms of CO₂ emissions and without increasing the level of energy consumption.

This study aims to explain and evaluate the Euro-Russian natural gas war, which started after the Russian attack on Ukraine in 2022, within the scope of the energy policies of both sides before and after the war. This study evaluates short-term and medium-term measures of Europe and Russia. In addition, a SWOT analysis is made, both sides’ strengths and weaknesses are discussed, and their opportunities and threats are explained. As a result, it is revealed that both sides will suffer from the gas war. However, in the medium term, Europe's developing LNG market and renewable resources may emerge stronger from this war. Still, Russia, which has lost its political and economic power over Europe, will suffer more.

Examining the Environmental, Social, and Governance (ESG) aspects of the organizations is one of the current concerns related to sustainable investment decisions. Energy markets are one of the key areas where ESG concepts are applied due to their dynamism, scale, and effect. Noting that the ESG framework is very appropriate for use of multi-criteria decision methodologies to rank the alternatives, the current research is motivated by the idea that clustering can also serve as a tool to evaluate ESG performance. Accordingly, we propose clustering as a tool for ESG analysis for OECD energy companies that enables us to identify the conflicting areas on ESG performance while avoiding potential controversies, the requirement for predefined information, or subjectivity in aggregation. The k-means clustering algorithm is used to analyze a data set of 231 energy organizations under the three ESG pillars of Environmental, Social, and Governance. We identify the patterns across the clusters that may signify high and low performance in each pillar and discuss the properties of prominent clusters in terms of business classifications and country of headquarters.

Many studies examining the price of CO₂ have analyzed mostly the EU ETC market and attempted to explain the relationship between energy prices and CO₂ emissions. This chapter investigates the dynamics and price determinants of the US CO₂ market and aims to capture the decrease in carbon prices (CO₂) with increasing incentives to renewable energy sources, in conjunction with economic growth, energy prices, and carbon permits. For this purpose, we analyze the carbon market prices, specific to the US energy markets, since there the carbon prices are low compared to other countries. We assume that the reason is the apparent increase in the incentives toward renewable energy sources. To explore the reasons and justifications, we employ econometric methods on data from the US market. In this context, linear regression, VEC model, and panel data analysis are performed according to their applicability and use. The findings show that CO₂ prices are influenced strongly by the renewable portfolio standards as well as carbon allowances and industrial production.

The green bond market has become one of the most promising mechanisms to raise financial sources for projects with environmental benefits that not only achieve carbon–neutral goals but also allow to diversify the risk and hedging. In this study, we examine the possible interdependence between the green bond market and seven energy markets, including Wilder Hill Clean Energy Index, S&P Global Clean Energy Index, Nasdaq Clean Edge Green Energy, Ardour Global Solar Energy Index, S&P Global Water Index, and MSCI Global Green Building Index using Diebold and Yilmaz's (2012) spillover framework. Our findings show that movements in the clean energy market have a spillover effect in the green bond market. Additionally, the spread of risk is asymmetrical.

Given that the global decarbonization of the energy sector entails huge amount of investment, green bonds have become an important tool and source of long-term capital for energy firms. This chapter examines the impact of green bond issuance on their stock and environmental performance. We analyze a sample of 239 green bonds issued by 80 unique energy firms in the period 2013–2021. We first follow the event study methodology and find that market reaction to green bond issuance announcements is largely positive. Using the difference-in-differences approach, we then show that energy firms generally perform better in their environmental practices. However, our results also imply that green bond issuance has a lagged and temporary effect on stock prices and environmental achievements are not that obvious, particularly in the short term. We draw attention to partly inconclusive nature of these findings emerging from our analyses and offer relevant policy implications for green bond market development on the basis of tackling with greenwashing and scaling up the market share.

There is a growing interest in improving resilience in power systems to extreme climate events because of societies’ high dependence on electrical energy and its vital role in economies. Resilience, which is closely linked with sustainability and the environmental, social, and governance (ESG), is especially important during the power system planning and implementation, and enhancement can accelerate the country’s energy transition. In this chapter, we examined the lignite-fired Çan and hydroelectric Eğlence power plants as two cases in Turkey that can reveal the effects of extreme weather/climate events on electricity generation. This study used hourly air temperature data for Çan thermal power plants and daily precipitation data for Eğlence hydropower plants. The results of the investigation confirm the findings of previous studies: extreme weather/climatic conditions that occur because of global climate change cause considerable losses in electricity generation. Efficiency losses in power generation systems severely undermine Turkey’s energy supply security and economy, especially given the country’s high level of energy-import dependency. It is impossible to design every power plant to resist all possible events at the same time, but the effect of extreme climatic events can be reduced. We strongly recommend that the concept of resilience be immediately taken into consideration in designing new power plant investments and in adapting already existing ones to make them more flexible to any abrupt changes in climate. Resilience should top the energy agenda to enhance supply security and decrease dependence on foreign sources.

Increasing awareness and expectations for a sustainable environment increases the pressure on the energy industry to reduce its pollution. Despite the importance of the subject, the number of studies examining the effect of environmental responsibility activities on financial performance of companies operating in the energy sector is limited. Also, the findings obtained from previous studies are mixed about the direction of the relevant relationship. This study examines the impact of environmental responsibility on financial performance within the framework of companies operating in the energy sector in the European Region. In doing so, it probes the validity of the stakeholder theory and agency theory in explaining the relationship between corporate social-environmental responsibility and financial performance. We consider 58 European energy companies that have detailed and classified environmental responsibility scores between 2011 and 2020. According to the applied three-dimensional panel data regression results, we find that the aggregate environmental score of the European energy companies has not a significant effect on their financial performance. However, the resource use score, which is one of the environmental sub-scores, is negatively related to both the return on assets and return on equity of the companies. Moreover, the emission reduction and environmental innovation scores, which are the other environmental sub-scores, do not have a significant effect on the environmental-financial performance relationship. Although we have obtained findings showing that activities aimed at reducing the use of environmentally harmful resources, energy and water have a reducing effect on financial performance by shedding light on the validity of the agency theory, we see that a neutral effect is dominant between the environmental responsibility activities and financial performance carried out in European energy companies in general.

This study examines the impact of the executive pay gap on corporate social performance (CSP), which is the average of social and environmental performance scores for firms in the energy sector worldwide. Following agency theory, we find that firms that pay their executives more than the industry average (pay gap) have lower CSP. We also examine the role of corporate governance at the firm level and market-supporting institutions at the country level to explain the relationship between the pay gap and CSP. The negative effect of the pay gap on CSP is less pronounced for firms located in countries with weaker market-supporting institutions. This evidence is consistent with the idea that firms use CSP to reach a broad investor base in weak market conditions. However, our results show that firm-level corporate governance is not as effective as country-level market institutions. This evidence supports the notion that development of country-level institutions drives CSP in the energy sector.

Previous studies have indicated a positive association between carbon reduction and firm performance. Using a dataset covering firms across 10 sectors and 53 countries over the period 2004–2019, we add to the literature by showing the differences between sectors and various groupings of countries on carbon reduction and firm performance in terms of the return on assets, the return on equity and the return on sales, as well as the Tobin’s Q and the current ratio. The services sector shows a positive result in relation to most of the corporate financial performance variables. The results also provide evidence for a negative relationship for agricultural and mining firms. The findings indicate that differences in carbon reduction are limited when allowing for various ways of grouping countries.