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ESG ratings and corporate financial performance in South Africa

Author

Listed:
  • Emmerson Chininga
  • Abdul Latif Alhassan
  • Bomikazi Zeka

Abstract

Purpose - This paper examines the effect of ESG ratings and its dimensions (environmental, social and governance) on the financial performance of JSE-listed firms included in FTSE/JSE Responsible Investment Index. Design/methodology/approach - The paper employs panel data covering 40 JSE-listed firms included in FTSE/JSE Responsible Investment Index between 2015 and 2019. The paper employs the two-stage least squares (2SLS) instrumental variable regression technique to estimate the effect of ESG ratings and its dimensions (environmental, social and governance) on both accounting- and market-based performance indicators. Findings - The results of the two-stage least squares instrumental estimation analysis reveal that investment in ESG initiatives improves both accounting- and market-based indicators of financial performance. Of the ESG pillars, the paper finds environmental initiatives improves firms' financial bottom line and market performance, while a firm's social and governance practices are observed to have no effect on a firm's accounting and market performance measures. Practical implications - The insights from this study proffers policy implications for firms' management, investors and regulatory authorities. Originality/value - As far as the authors are concerned, this paper presents the first empirical analysis on the contribution of ESG ratings on financial performance in South Africa.

Suggested Citation

  • Emmerson Chininga & Abdul Latif Alhassan & Bomikazi Zeka, 2023. "ESG ratings and corporate financial performance in South Africa," Journal of Accounting in Emerging Economies, Emerald Group Publishing Limited, vol. 14(3), pages 692-713, August.
    • Handle: RePEc:eme:jaeepp:jaee-03-2023-0072
    DOI: 10.1108/JAEE-03-2023-0072
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