How do environmental, social and governance initiatives and controversies explain the firm efficiency of Chinese energy companies?
Abstract
Purpose
This study investigates how the initiatives and controversies related to environmental, social and governance (ESG) explain firm efficiency.
Design/methodology/approach
Firstly, this study applies data envelopment analysis with the epsilon-based measure to estimate the firm efficiency of 80 companies in the Chinese energy sector in 2022. This approach accounts for the diversity and relative importance of inputs and outputs from a multidimensional perspective. Secondly, this study regresses the variables of ESG initiatives and controversies on the estimated firm efficiency scores through a generalised additive model, which can capture nonlinear patterns.
Findings
This study finds that a) the samples have i) about 49% room for improvement in efficiently optimising their resources and business outcomes and ii) the highest scores in governance initiatives, followed by social initiative. b) 69% of them have controversy scores that are greater than the average value. c) A cluster analysis indicates that companies with higher social initiatives have higher firm efficiency than their counterparts. d) ESG initiatives and controversies are nonlinearly related to firm efficiency.
Research limitations/implications
The findings have practical implications for policy makers and managers who prioritise ESG, particularly regarding (i) the need to examine firm performance from a multidimensional perspective, that is, to measure multiple inputs and outputs simultaneously, (ii) the nonlinearity of the nexus between ESG and efficiency in graphical forms, and (iii) the need to balance ESG initiatives and address ESG controversies.
Originality/value
This study integrates statistical approaches in examining and ensuring sustainable growth and efficiency within the Chinese energy sector and beyond.
Keywords
Acknowledgements
The authors would like to thank Canadian University Dubai and Universiti Malaysia Pahang Al-Sultan Abdullah for its financial support to this research (UIC231505/RDU232702).
Citation
Kweh, Q.L., Ting, I.W.K., Ren, C. and Asif, J. (2024), "How do environmental, social and governance initiatives and controversies explain the firm efficiency of Chinese energy companies?", Kybernetes, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/K-12-2023-2704
Publisher
:Emerald Publishing Limited
Copyright © 2024, Emerald Publishing Limited