Environmental, Social and Governance Performance: Continuous Improvement Matters

Abstract

This paper examines the determinants of Malaysian listed firms’ environmental, social and governance (ESG) performance during the period 2005–2018. We focus on individual firms’ continuous efforts to improve their ESG scores once they are ESG rated. Panel fixed effect results reveal that the number of years since a firm was first included in Bloomberg’s ESG score is positive and significantly related to its ESG performance. We interpret this as evidence of firms’ deliberate efforts to improve their ESG scores once they fall under the radar of a third-party ESG rating agency. This finding underscores the importance of third-party rating agency in fostering greater corporate sustainability. We contribute to the literature that posits that ESG third-party rating agency can lead to higher level of ESG practices of the rated firms.