Exploring determinants of environmental, social, and governance scores for listed firms: An organizational context

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Abstract

The environmental, social, and governance (ESG) performance has become increasingly important in the investment decision-making process in recent years. However, assessing ESG performance is difficult because it involves considering a wide range of metrics. To address this complexity, ESG scores provided by third-party agencies are commonly used as proxies for ESG performance. Nonetheless, ESG scores have been criticized for their inadequacy in capturing precise and holistic ESG performance. This article aims to construct a comprehensive framework that examines the factors influencing the ESG scores of listed firms in mainland China. The scoping review methodology is employed to identify key determinants of ESG scores in the theoretical framework based on existing theories. The goal is to unveil the actual ESG performance metrics captured by ESG scores by integrating stakeholder theory, legitimacy theory, and institutional theory, thereby deconstructing the factors influencing ESG scores. The findings show that third-party agency ESG scores may not precisely represent ESG performance because these scores can be influenced by non-ESG-related issues and may fail to capture some crucial ESG matters. This study contributes to the limited literature investigating determinants of ESG scores, such as Crespi and Migliavacca (2020) and Rajesh and Rajendran (2020), to further enhance understanding in this area.

Keywords: ESG Scores, Stakeholder Theory, Legitimacy Theory, Institutional Theory, Mainland China

Authors’ individual contribution: Conceptualization — Y.H.; Methodology — Y.H.; Investigation — Y.H.; Formal Analysis — Y.H.; Writing — Original Draft — Y.H.; Writing — Review & Editing — R.R.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G30, G11

Received: 31.01.2024
Accepted: 08.11.2024
Published online: 13.11.2024

How to cite this paper: Hong, Y., & Rosli, R. (2024). Exploring determinants of environmental, social, and governance scores for listed firms: An organizational context. Journal of Governance & Regulation, 13(4), 207–217. https://doi.org/10.22495/jgrv13i4art20