Socio-economic Factors Affecting ESG Reporting Call for Globally Agreed Standards

Abstract

The main aim of this paper is to firstly investigate if all components of ESG are equally reported by companies and secondly to identify the impact political and economic institutions and macroeconomic variables have on the composite ESG index. Utilizing data for environment, social and governance from Refinitiv and constructing composite indices based on the Principal Component Analysis, the authors investigate the effect of socio-economic factors on ESG over the period 1984-2020 for 139 countries using a Panel Fixed Effects model with structural breaks. The results reveal that there is an increasing trend for the Social, Governance and aggregate ESG indices, but not for the Environment index where the trend is decreasing. Moreover, considering the role of economic and political institutions and macroeconomic variables, higher levels of corruption, civil disorder, civil war, economic and financial risk, ethnic and religious tensions, foreign pressures, risk in law and order, military in politics and inflation, have a negative effect on ESG performance. In contrast, income per capita and trade openness have a positive impact on ESG performance with heterogeneous results before and after 2010. The findings have significant policy, practical and social implications emphasizing the importance for ESG reporting to be uniformly implemented with globally accepted standards.