Environmental, Social, Governance Risk and Corporate Sustainable Growth Nexus: Quantile Regression Approach

Abstract

Despite a huge body of literature revealing that the effect of environmental, social and governance (ESG) scores on a firms' financial performance and value, it lacks the empirical research on the nexus between corporate sustainable growth and ESG risk in the existing research. The paper aims to examine the nexus between ESG risk and corporate sustainable growth. This study utilizes a quantile regression approach to explore how ESG risk affects corporate sustainable growth (proxied by sustainable growth rate, SGR). The ordinary least squares estimation results confirm that ESG significantly negatively affects corporate sustainable growth. The quantile regression results reveal ESG risk has a significant negative effect on corporate sustainable growth in the upper quantiles of SGR, but not in the lower and median quantiles. The results show that the impact of ESG risk on the corporate sustainable growth is asymmetric and affected by the distribution of SGR. Furthermore, the research results identify that the negative relationship between ESG risk and corporate sustainable growth is particularly apparent for firms in environmentally sensitive industries. This study greatly contributes to existing literature, as with this detailed knowledge, managers can make decisions based on these associations and identify the most lucrative course of action.

Environmental, social, governance disclosure and corporate sustainable growth: Evidence from China

“…Practicing ESG responsibility is an inevitable requirement to adhere to sustainable development, an important initiative to implement the new development concept, and significant to achieve carbon capping by 2030. This paper investigates the impact of ESG disclosure on corporate sustainable growth using a sample of Chinese listed companies with 300 shares in Shanghai and Shenzhen from 2015-2019, and draws the following findings: first, ESG disclosure can enhance corporate sustainable growth, the findings further support the spillover effect of ESG disclosure and provide new evidence to explore the uncertain consequences of information disclosure from a sustainable growth perspective, The quantile regression analysis found that the higher the sustainable growth quantile of the firm, the greater the contribution of ESG disclosure, which is similar to the study of Teng et al (2021), which both concluded that the role of ESG is more pronounced in the upper quantile of SGR. Second, ESG disclosure enhances sustainable growth by improving human resource pool and reducing financing constraints; human resources, as a core competency of firms, can effectively buffer external shocks, improve operational performance, and enhance sustainable growth, a finding that corroborates the study of Hahn and Kühnen (2013), that sustainability disclosure increases transparency, improves corporate reputation, and achieves the goal of motivating employees and thus employee support the goal of dedication to the firm; Third, the heterogeneity analysis found that ESG disclosure of non-environmentally sensitive firms can promote sustainable growth compared to environmentally sensitive firms; ESG disclosure with high environmental uncertainty can help firms grow sustainably compared to low environmental uncertainty; previous studies have also supported the idea that ESG disclosure promotes more for nonenvironmentally sensitive firms as well as high environmental uncertainty from different perspectives, for example, Wu et al (2020) study argues that green development and environmentfriendly development can enhance development efficiency; Kumar (2022) study argues that as uncertainty increases, high levels of ESG disclosure by tourism firms can build good relationships and good reputation with various stakeholders, especially during the COVID-19 period and during the global financial crisis, ESG disclosure can moderate the negative impact of economic uncertainty on corporate value; in the context of increased uncertainty in the external environment, ESG disclosure can play a signaling and reputation effect, which can bring confidence and hope to stakeholders and thus promote sustainable growth.…”

“…The traditional ordinary least squares method calculates the magnitude of the coefficients from an average perspective and is unable to capture the differential impact of ESG disclosure on the future growth opportunities of companies. In contrast, quantile regression is a regression method that estimates the coefficients of independent variables based on the conditional distribution of the explanatory variables and is able to use diverse information from different quantile groups for regression analysis of the model (Teng et al, 2021), and Table 5 presents the results of using quantile regression. Five quartiles of sustainable corporate growth were selected from small to large, namely 10, 25, 50, 75 and 90%.…”

“…In order to assess the impact of different influencing factors on the findings of this paper, this paper regressed the environmentally sensitive and non-environmentally sensitive industry groups, the high environmental uncertainty group and the low environmental uncertainty group, and conducted group regressions. Referring to Teng et al (2021), the consequences of ESG disclosure impact are closely related to the type of industry. Among them, environmentally sensitive companies were standardized by the heavy pollution industries identified in China's "Guidelines for Environmental Information Disclosure of Listed Companies" in 2010.…”

impact of ESG strategies integration on the operational and reputational risks

“…Many studies have indicated the need for public shareholding companies to disclose the necessary and sufficient information about all their activities because of their positive effects on their economic value (Ellili et al, 2022;Teng et al, 2021;Rajesh et al, 2021). The results of some studies have also indicated that the reputational risks may cause a negative impression on companies, which may lead to losses in their funding sources, or may lead to the transfer of some shareholders into competing companies (Rajesh et al, 2021;Sheykhi, 2022;Cornell, 2021).…”

“…The new approach requires identifying, evaluating and managing risks efficiently (Bannier et al, 2019). Thus, many studies have indicated that companies should consider risks in a holistic perspective and separately for each business unit in companies (Teng et al, 2021;Gangi et al, 2020). This may eventually lead to adopting a portfolio approach of risk management in companies (Verheyden et al, 2016;Eratalay & Ángel, 2022;Samyukth, 2021).…”