Impact of ESG on Financial Performance of Listed Securities

Impact of ESG on financial
performance of listed
securities in the UK and
Europe

Contents
Contents...........................................................................................................................................2
CHAPTER 1: INTRODUCTION....................................................................................................3
1.1 Background to research topic.....................................................................................................3
The businesses qualify themselves for E, S and G.............................................................4
The attributes for Water sanitation....................................................................................4
The attributes for SASB accounting measures..................................................................5
1.2 Background to research organisation.........................................................................................7
1.3 Research rationale....................................................................................................................10
1.4 Research questions...................................................................................................................17
ESG Vs non-ESG.................................................................................................................17
Within ESG: Below and above median Vs their respective ESG ratings............................20
Corporate Knights Global 100..............................................................................................21
DowJones Sustainability Index............................................................................................22
ISS........................................................................................................................................22
MSCI ESG Research............................................................................................................22
RepRisk................................................................................................................................23
Sustainable Company ESG Reports.....................................................................................23
Thomson Reuters ESG Research Data.................................................................................23
1.5 Research aims and objectives..................................................................................................25
REFERENCES..............................................................................................................................26

CHAPTER 1: INTRODUCTION
1.1 Background to research topic
Environmental, social and governance (ESG) seem to be the principles for the activities of a
business used by socially responsible investors to track future investments. Environmental
impacts take into account how such an organisation behaves as environment manager.
Dependent variables investigate how interactions with workers, vendors, consumers as well as
the areas in which it works are handled. Environmental requirements may also include business
energy use, recycling, emissions, protection of natural resources and animal production. The
criterion is also used to determine any natural dangers posed by a business as well as how the
given conditions these risks. There are concerns such as possession and storage of polluted
property, harmful backflow prevention or enforcement with governmental environmental
legislation. There are also problems relevant to their control. Throughout the previous years,
politically progressive projects have been reputed to entail a balance on the portion of that same
shareholder. Although they narrowed the number of investment-eligible firms, they therefore
limited the possible benefit of the investor. Sometimes the "Bad businesses were really good of
course as far as the financial performance was concerned. Currently, general research on this
subject suffer from a variety of limitations. In fact, many are focused on past performance
records, which is not inherently a future performance predictor. This is particularly important in
the ESG environment because of the sheer complexity of ESG problems that are formed by
rapidly shifting megatrends like environmental issues as well as demographic changes. In
addition, from negative screening to complete ESG inclusion, ESG investment methods vary
greatly, and can also lead to various desired effects. Crucially, there are presently no
standardized guidelines for how ESG variables should be accounted for and calculated in the
industry, restricting the reliability of ESG output between organisations. Although the few
researchers in the field of single deposits indicate a possible real performance in certain markets,
perhaps with some varying impacts, the findings of many other equity research suggest a much
greater difference. These considerations mean that it would be impossible to draw assumptions
purely again from previous research, it would be necessary to optimize further analysis. The
topic of how ESG contributes to trade finance success will continue top of the agenda, including
ESG factors being more common and stakeholders increasingly turning to Operating

performance both as way to discriminate between firms. They currently assume that ESG output
will provide useful information about the financial as well as equity success of a firm; however,
there is mixed experimental proof and further research is required, especially in the specified
industry.
In their opinion, however, the ESG study will help to recognise a range of possible
overdenture challenges and opportunities, such as the likely impacts of involved in energy
policies and cost reductions associated with increased asset use. It is evident that an objective
and reliable calculation of non-financial indicators in the short to lengthy period will help to put
a spotlight on expenditure and allow the company. The environmental, social and governance
score is that will help the organisation to have the transparency and increasing the performance
of the organisation. There are three methods to have the ESG score and it is equal weighting,
optimizing with historical data and industry specific weights which is given by MSCI ESG
rating. The equal weightage and optimizing is the best methods to have the ESG because the will
help in solving the government issues. The industry specific weights are helping the organisation
in increasing the financial performance. They will help the organisation to increase the
performance.
The businesses qualify themselves for E, S and G
The environmental and social issues are the industry specific and they will give the financial
performance of the organisation for the long term and the government issues are for short term
and they are giving the factors that will improve the performance of the organisation. The equal
weights are given to the E, S and G and they will have to give the factors that will improve the
performance and they are simple for the organisation. The optimizing is used by the organisation
for the finance and they will increase the quality and the industry specific will help the
organisation to increase the performance.
The attributes for Water sanitation
The sanitation is one of the needs of the human beings and they will make them hygienic and the
safe drinking water is important for improving the quality. The advantage for the people to be
hydrated and healthier is that they get the safe drinking water. The unhygienic water will affect
the human beings as they will get sick and have the problems. The water is one of the necessity
of the people and they will have to drink a minimum of 3 litres and they have many uses like
washing and having good quality. The sanitation is the process of removing the human waste and

the people are not having hygienic water they will use the water which will affect the health. The
sanitation is important because it is a day to day activity and it is important for the health benefits
of the humans. The waste of the human beings is affecting them and they will have the diseases
which is making them sick and they are not getting hygienic.
The attributes for SASB accounting measures
The Sustainability Accounting Standard Board was founded by Jean Roger in 2011 to
develop the accounting standards sustainable and they have the financial organisation that are
affecting the environmental, social and governance factors on the financial performance of the
organisation. They are having the industry specific factors that will affect the long term
performance of the organisation. The organisation in different industries are affected by the
industry specific and they will increase the performance. The industries are consumer goods,
financials, services and they will have different methods to improve the performance. It helps the
organisations in reducing the cost and increasing the quality.
Recent times, several shareholders have been persuaded, though those economic, sustainable
development requirements do not have any legal issues but are realistic. By pursuing ESG
criteria, businesses whose actions could suggest an increased risk could be avoided as
demonstrated by BP's 2010 environmental disaster and also the Volkswagen pollution crisis,
which shook up the company's stock as well as resulting throughout the resulting damages at
trillions of dollars. Environmental, societal and government represent ESG. Shareholders use
such non-financial considerations to define material challenges and development prospects more
and more as part of their research process. ESG indicators do not typically form the basis of
compulsory income statement, but the financial statement or separate stabilization is gradually
being made available by businesses. Many organisations, including the Sustainability
Accounting Standards Board (SASB), the Global Reporting Initiative (GRI) as well as the
Environment Financial Transparency Working Group (TCFD), are designing the principles and
identifying the materials required to promote their introduction into another capital structure.
After all, because in published studies a great deal has been explored about the relation between
a company's business success and ESG parameters, the empirical findings are always
contradictory. The multitude of information and methods used between studies can excuse the
absence of quality of the findings. The intensity of the relationship between financial as well as
CSR results depends in particular on the evaluation of both output and various measuring

parameters. It should be stressed that the cumulative positive effects on accounting efficiency are
derived from every of the three groups of ESG ratings, both environmental, social and
management. If we talk about economy or the efficiency of funds, although the results differ
significantly with the group chosen, so past studies could clarify why bonds are rarely observed
as aggregates. Therefore, they would assume that the use of a business model will have a
favourable, positively or negatively impact on ratings in various sub-categories. The ESG group
most researched is far-reaching governance, the beneficial influence of which is secondary to
environmental consensus, although social influences are less discussed. Ecological sciences
meta-analysis reports that a simple standard error offers more detrimental outcomes in relating
efficiency with ecological considerations. Therefore, focusing on sophisticated econometric
techniques seems fitting. She also admonishes that in areas of criminal law a strong association is
more prevalent than in those of civil law. Social aspects are shown to improve sales generation
by, for instance, increasing efficiency in the workforce, encouraging diversity and greater
comprehension of consumer needs. In 2017, for example, the U.S. petitioned a consortium of
investors controlling $2.8 trillion in cash. In order to encourage stronger corporate reporting on
performance management in financial reports, the Stock Exchange Commission cites the
findings of a survey by human management, which showed that a 5 percent rise in the loyalty of
workers to their company resulted in a 3 percent increase in sales in the ensuing year. In
comparison, the income of women-owned firms in the U.S. has increased by 103 percent
and gender-diverse large enterprises are 15 percent abler to expect upwards of their counterparts.
In some other example, Unilever has shown its latest sustainable development brands' valuation
prospects, which generated 50 percent stronger growth. Fundamentally, an overview of a
corporation's emphasis on ESG, the aspects wherein the organization communicates with the
community and culture over the medium haul, and its system of management supplement
conventional financial research, offering a greater view of corporate success in an inherently
unpredictable world. Changing climate remains to be the industry's highest concern, however the
pandemic's influence has exacerbated places where firms may fell short of ESG practises,
causing them to learn about threats which have not materialised. This year, S&P International
introduced to the CSA checklist many security data including privacy concerns as enterprises in
diverse sectors tackle rising cybersecurity concerns. Under non-disclosure arrangements,
businesses have the right to request such sensitive material.

1.2 Background to research organisation
Besides a strong positive social effect, it is possible that investors will still search for a
return on investment. Companies of ESG approaches claim that they have a longer-term and
more competitive outlook than "traditional companies, capable of performing in communities but
without ESG approaches. Numerous research reports indicate that ESG success and financial
performance have a strong relation. The ESG shorthand implies "environment, social and
governance," as shown in the overview. Some of these considerations are relevant for
corporations and different interested parties their businesses successful and viable for society as
a whole and not only (financial shareholders). The word CSR (social responsibility of
corporations) also serves as a generic term and for ESG acronym. From the S&P yearly
international rating it has been determined that ESG determination is consider to be a type of
assessment of a firm actual policy and capability for the ESG in preparing the strategies for
upcoming risk and the opportunities. Thus it has been stated that ESG assessment is meant for
the primary tool which is beneficial for the investors which actually provide a future looking
approach, long period perspective of preparation for all the risk and mismanagement relevant to
ESG in a specific time period. It is also determined that the methods of ESG have been founded
within the analyst’s areas as well as the company expertise that basically depended upon the in-
depth evolvement with all the business managers in order to control and assess the raw material
ESG influence over the functioning of company in past, present as well as upcoming time. The
global S&P rating assessment delivers the collaborated view which help the companies to make
sure that not any point of environment factors, social factors and governance factors would
impact the business situations.
In the context of MSCI rating for the ESG it is defined that these rating are basically formulated
to count a company elasticity over a longer time period, material of environmental industry. Risk
related with governance and social. The responsible manager uses a defined rule based
technology that help in determining the leaders of particular industry and other laggards as per
the vulnerability to risk of ESG as well as how they will control and regulate such threats that are
related with other competitive companies and stakeholders. It is also determined that stakeholder
might also regard a variety of factors related with ESG, valuables metrics and the information
which help in looking the scenarios of adopting the ESG investments techniques and also apply
for a beneficial ESG portfolio. All such elements mainly consist of a key which is industry

specific problems such as changes in climate, fluctuation in labour and human capital as well as
management, sex discrimination, data and privacy security, corporate governance as well as all
the other variables that can reduces the functioning of a company. For instance, a company
dealing in mining and the other in financial services faces various kind of ESG risks that will
decrease their performance as well as these companies also get chances which will be evaluated
on the main problems within their respective industry.
The UN principles for responsible investment is a valuable global company which
support in promoting the reliable incorporation of environment, social and governance variables
which help in making investment. It basically works to make sure that all the investment
implications of ESG will support the global network of investors signatories in making such
variables into the valuable and ownership decisions. It is truly independent which makes the
stakeholders to better utilise the responsible investments in order to increase the returns as well
as manage the risk in better manner, as it does not function for the profits and it involves within
the international principle makers which are not related with any of the long prevailing behaviour
that gives the main 6 Principles in which the signatory firms might become agree to put a great
effort in accomplishing the desired results. Thus, it has been determined that principle sign for
UN responsible investments are being liable for around 80 trillion dollar at international level in
the context of assets management that also involves some of the global influential and biggest
investors. Some of these principles are discussed underneath:
1. All the securities and bonds will be incorporated within issues of ESG including decision
making system and investment analysis.
2. It is obvious that all companies will be an active stakeholder and consider issues of ESG
within the techniques and practise of ownership.
3. Companies also have to disclose the suitable disclosure on issues of ESG by the other
firms in which they invest at global level.
4. All the companies dealing the investment sector will promote the acceptance and
implementation of the UN principles within the same sector in order to make higher
results.
5. The main concept of firms working together is to increase the effectiveness in making the
right implementation of all principle which help in making decision for betterment of
environmental, social and governance variables.