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ESG in Focus: The Australian Evidence

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Abstract

Addressing ESG issues has become a point of interest for investors, shareholders, and governments as a risk management concern, while for firms it has become an emerging part of competitive strategy. In this study, a database from an independent ratings agency is used to examine, longitudinally, how Australian Securities Exchange (ASX) 300 firms are responding to ESG issues. Following institutional theory predictions, ASX300 firms are improving ESG performance over the 2002–2009 timeframe. Furthermore, over this timeframe, performance on the governance dimension improved at a greater rate than environmental or social performance, as predicted. Lastly, high impact industries are predicted to demonstrate overall improved ESG performance relative to medium or low impact industries over the timeframe, but this hypothesis was not confirmed. Results are discussed along with implications and future research directions.

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Notes

  1. The KLD governance dimension assesses (1) limited compensation (limits to CEO and outside director compensation); (2) ownership (focal firm ownership of other companies KLD rates as having social strength); and (3) other strengths (e.g., innovative compensation plan for its board or executives, unique or positive corporate culture). These KLD dimensions do not appear to adequately capture broader aspects of corporate governance as identified in the literature, such as board structure, committee independence, accountability, reporting and disclosure, and shareholder rights.

  2. High, medium, and low impact industries were determined according to the FTSE4Good Index Series Inclusion Criteria. A breakdown of various sectors in each industry is given in Table 2.

  3. Prospectors tend to be entrepreneurial, dynamic, innovative, and seek to exploit first-mover advantages. Defenders seek to maintain secure niches in stable product-markets and focus on internal efficiency. Analyzers are considered a hybrid between prospectors and defenders, seeking to maintain a relatively stable base of products while at the same time move to capitalize on new market opportunities, although generally as second-movers to prospectors. Lastly, reactors demonstrate inconsistent behavior and do not follow a strategy in any coherent manner.

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Acknowledgments

This research was supported by a Discovery Grant from the Australian Research Council.

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Authors and Affiliations

  1. Curtin Graduate School of Business, Curtin University, 78 Murray Street, Perth, 6000, WA, Australia

    Jeremy Galbreath

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Correspondence to Jeremy Galbreath.

Appendix

Appendix

ESG dimensions and how firms are rated by SIRIS

See Table Appendix 1.

Table 4 Appendix 1
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Galbreath, J. ESG in Focus: The Australian Evidence. J Bus Ethics 118, 529–541 (2013). https://doi.org/10.1007/s10551-012-1607-9

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