The research of environmental, social, and governance issues as well as corporate social responsibility, with a focus on corporate finance and financial economics. So, we concentrate on the subjects that have generated the greatest discussion and study. Even though a firm’s ESG/CSR activities and profile are strongly related to the firm’s market, leadership, and owner characteristics as well as its risk, performance, and value, there are still competing hypotheses and results that, as we demonstrate, cannot be reconciled. Dieses leaves open additional questions and calls for further study.

OVERVIEW:

Academic study on ESG/CSR has substantially grown, along with the rise in interest among investors and business management. In this essay, we evaluate the corporate finance literature on ESG/CSR concerns with an emphasis on the most crucial and contentious issues.

A set of criteria for a company’s conduct known as environmental, social, and governance (ESG) investing is used by socially responsible investors to evaluate possible investments. Environmental criteria take into account a company’s environmental protection efforts, such as corporate climate change policy. The management of connections with customers, suppliers, workers, and the communities in which it works is examined under the social criteria. Leadership, executive compensation, audits, internal controls, and shareholder rights are all topics covered under governance.CSR typically refers to an organization’s commitment to engaging in environmentally and socially responsible behavior, operating in a way that benefits both the environment and the communities in which the firm operates. The term CSR, however, has gained more significance for contemporary corporations as a result of rising public awareness of environmental challenges (such as climate change) and a bigger social pressure from customers and regulatory agencies for enterprises to engage in a socially responsible manner.

Market parameters and a company’s ESG/CSR qualities

Numerous studies investigate the relationship between ESG/CSR factors of businesses and market features. These are frequently traits at the national or state level depending on the places where businesses are located, or traits specific to the sectors in which businesses are engaged. The research we analyze in this area only employs the firm’s ESG/CSR performance as the dependent variable, even when the direction of causality isn’t always explicitly stated.

ESG/CSR Features and ownership traits of businesses

Numerous Studies look at connections between different ownership structures and companies’ ESG/CSR decisions. Like in earlier sections, the papers reviewed here frequently advance our knowledge of whether a company’s ESG/CSR initiatives serve the interests of its shareholders or are the result of agency issues. Numerous studies look at this issue, utilizing measures of ownership structure as substitutes for external governance and the ESG/CSR score of a company as a dependent variable with the theory that it

Organizational ESG/CSR Characteristics and Risk

ESG/CSR issues have long been thought to have an impact on business risks and, ultimately, the cost of capital. In the section on firm value that follows, we address some of those concerns.

Numerous connections between ESG/CSR activities and various aspects of the firm, such as the market in which the firm operates, firm structure (including leadership and ownership), firm risk, and firm performance, have been hypothesized and documented by corporate finance researchers in their theoretical and empirical work. We have emphasized that some of the results are fairly solid in this literature evaluation. However, some findings are contradictory, indicating that there is a need for effort aimed at bridging differences.