What drives environmental, social and governance (ESG) performance? The role of institutional quality
Management of Environmental Quality
ISSN: 1477-7835
Article publication date: 23 October 2023
Issue publication date: 12 February 2024
Abstract
Purpose
This study aimed to investigate the role of the country's institutional quality on the environmental, social and governance (ESG) performance of its companies.
Design/methodology/approach
Over a four-year period (2016–2019), the study examined the ESG performance of 412 organizations situated in 19 countries. ESG performance was the dependent variable, and the independent variables were rule of law, economic freedom, education index and international trade freedom. These factors described the institutional quality of countries in the authors’ study.
Findings
The findings reveal that institutional quality has a major impact on ESG performance. Companies engage in more ESG practices when they operate in countries with greater economic freedom and international trade freedom. The authors corroborated the core assumption of institutional theory (IT), which argues that organizational behavior is determined by the country's institutional setting.
Research limitations/implications
The findings, like all research, should be interpreted with caution. The authors’ research focused solely on large energy corporations. As a result, the conclusions cannot be applied to small companies or other industries. ESG performance can also be measured using different datasets.
Practical implications
If managers want their companies to perform better in terms of ESG, the authors recommend that they form a CSR committee and sign the Global Compact. This study may be valuable to international policymakers because they can underline that greater economic freedom, better education and greater international trade freedom all promote higher ESG performance.
Originality/value
To the best of the authors' knowledge, nearly all of research explores the relationship between ESG and financial performance. As a result, this study built on past research by investigating how national aspects affect corporate ESG performance.
Keywords
Acknowledgements
The authors would like to thank Editor Prof Malin Song for his excellent support during the review process and two anonymous reviewers for their valuable comments. The previous version of this paper was presented at the Seminários em Administração (Semead) Conference in São Paulo. At this conference, this research also benefited greatly from the suggestions made by professors Flavio Hourneaux Junior and Larissa Marchiori Pacheco. The authors are also grateful for the financial support provided by CAPES (Coordenação de Aperfeiçoamento de Pessoal de Nível Superior - Brasil).
Since acceptance of this article, the following author have updated their affiliations: Alan Bandeira Pinheiro is at the NEOMA Business School, Rouen, France.
Citation
Pinheiro, A.B., dos Santos, J.I.A.S., Cherobim, A.P.M.S. and Segatto, A.P. (2024), "What drives environmental, social and governance (ESG) performance? The role of institutional quality", Management of Environmental Quality, Vol. 35 No. 2, pp. 427-444. https://doi.org/10.1108/MEQ-03-2023-0091
Publisher
:Emerald Publishing Limited
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