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ESG: Research Progress and Future Prospects: Sustainability
ESG: Research Progress and Future Prospects: Sustainability
Review
ESG: Research Progress and Future Prospects
Ting-Ting Li 1, *, Kai Wang 1 , Toshiyuki Sueyoshi 2,3 and Derek D. Wang 1
1 College of Business Administration, Capital University of Economics and Business, Beijing 100070, China;
[email protected] (K.W.); [email protected] (D.D.W.)
2 Department of Management, New Mexico Institute of Mining and Technology, Socorro, NM 87801, USA;
[email protected]
3 School of Environment and Society, Tokyo Tech World Research Hub Initiative, Tokyo Institute of Technology,
Tokyo 108-0023, Japan
* Correspondence: [email protected]
Abstract: The sustainable development of the global economy and society calls for the practice of
the environmental, social and governance (ESG) principle. The ESG principle has been developed
for 17 years following its formal proposal in 2004. Countries around the world continue to promote
the coordinated development of the environment, society, and governance in accordance with the
ESG principle. In order to review and summarize ESG research, this study takes the literature related
to ESG research as the research object and presents the cooperation status, hot spots, and trends of
ESG research with the help of the literature analysis tool CiteSpace. On the basis of quantitative
analysis results, this study presents an examination and comprehensive summary of progress in the
research into ESG combined with a systematic literature review. This includes the theoretical basis of
ESG research, the interaction between the dimensions of ESG, the impact of ESG on the economic
consequences, the risk prevention role of ESG, and ESG measurement. Based on the systematic
summary of research progress, this paper further refines the characteristics of ESG research, reveals
the shortcomings of ESG research, and propose a focus for ESG research in the future in order to
Citation: Li, T.-T.; Wang, K.; provide a reference for academic research and the practice of ESG.
Sueyoshi, T.; Wang, D.D. ESG:
Research Progress and Future Keywords: ESG; bibliometric; literature review; future research navigation
Prospects. Sustainability 2021, 13,
11663. https://doi.org/10.3390/
su132111663
1. Introduction
Academic Editor: Fernando Almeida
Human society never ceases in its pursuit of progress. Today, with the development
of the economy and society, the world is faced with not only many opportunities, but also
Received: 30 June 2021
Accepted: 11 October 2021
challenges. In 2020, “Black Swan” events occurred frequently. With the global spread of
Published: 21 October 2021
COVID-19, four meltdowns in the US stock market in a fortnight, the plague of locusts in
Africa, Luckin Coffee being delisted following fraud, etc., environmental (E), social (S), and
Publisher’s Note: MDPI stays neutral
governance (G) issues have aroused global concern. The theme of sustainable and com-
with regard to jurisdictional claims in
prehensive development has, once again, become a hot topic of discussion worldwide. In
published maps and institutional affil- response to the increasingly severe sustainable development problems in the environment,
iations. society, and the financial market, international organizations and countries worldwide
have put forward sustainable development action plans such as ESG to build a sustainable
and comprehensive development framework of human society.
The ESG principle is a framework system including environmental (E), social (S),
Copyright: © 2021 by the authors.
and governance (G) factors (see Table 1) [1]. ESG stems from responsible investment. The
Licensee MDPI, Basel, Switzerland.
principles for responsible investment (PRI) define responsible investment as “a strategy and
This article is an open access article
practice to incorporate environmental, social and governance (ESG) factors in investment
distributed under the terms and decisions and active ownership” [2]. Therefore, ESG is usually a standard and strategy
conditions of the Creative Commons used by investors to evaluate corporate behavior and future financial performance. As an
Attribution (CC BY) license (https:// investment concept for evaluating the sustainable development of enterprises, the three
creativecommons.org/licenses/by/ basic factors of ESG are the key points to be considered in the process of investment analysis
4.0/). and decision making. Moreover, environmental, social, and governance (ESG) factors help
to measure the sustainability and social impact of business activities [3]. As the EBA
(European Banking Authority) states, ESG factors are “environmental, social or governance
matters that may have a positive or negative impact on the financial performance or
solvency of an entity, sovereign or individual” [1]. Therefore, as a value of sustainable
and coordinated development that takes into account economic, environmental, social,
and governance benefits, ESG is an investment philosophy that pursues long-term value
growth, and it is a comprehensive, concrete, and down-to-earth governance method.
Table 1. ESG framework (international frameworks).
• GHG emissions
• Energy consumption and efficiency
• Air pollutants
• Water usage and recycling Environmental matters that may have a
• Waste production and management (water, positive or negative impact on the
Environmental (E)
solid, hazardous) financial performance or solvency of an
• Impact and dependence on biodiversity entity, sovereign, or individual.
• Impact and dependence on ecosystems
• Innovation in environmentally friendly
products and services
Source: own elaboration base on the EBA report on ESG risk management and supervision. Available online: https:
//www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Reports/2021/1015656/EBA%20Report%20
on%20ESG%20risks%20management%20and%20supervision.pdf (accessed on 31 July 2021).
Since the ESG principle was formally proposed in 2004, it has been actively practiced
in Europe, America, and other developed countries. A series of achievements promote the
development and maturity of the environmental, social, and governance factors, as well as
ESG as a whole, such as the establishment of the ESG evaluation system, the ESG disclosure
standards, and the ESG index system. These factors are constantly building a new pattern
of sustainable development. With the concept of ESG gradually becoming mainstream,
ESG has been widely examined, practiced, and popularized in the practical field, and it has
aroused the interest of scholars from all over the world. At present, there are few literature
reviews on ESG research. Moreover, they mainly focus on ESG investment (Daugaard,
2020) [4], the importance of ESG metrics in SRI (socially responsible investment) (Widyawati,
2020) [5], the influence of the ESG score on measuring corporate sustainability performance
(Drempetic et al., 2020) [6], the origin and significance of the name of ESG in investment
Sustainability 2021, 13, 11663 3 of 28
(Eccles and Viviers, 2011) [7], and the importance and role of ESG factors in the financial
decision-making process (Ziolo et al., 2019) [8]. In addition, there are literature reviews on the
role and performance of corporate governance (G) in ESG (Yoshikawa et al., 2021) [9] and
discussions of the relationship between corporate governance and corporate social responsi-
bility (Aluchna and Roszkowska-Menkes, 2019) [10]. At present, it can be observed that ESG
reviews mainly focus on one aspect of ESG factors, and there is a scarcity of literature on
the environmental (E) and social (S) factors. However, after combing the relevant literature
of ESG research, this paper finds that ESG, as an integrated framework and concept of
environmental, social, and governance factors, displays an interactive relationship between
its dimensions, and many studies focusing on the interaction between the environmental
(E), social (S), and governance (G) factors have emerged. In addition, the environmental,
social, and governance factors play an important role in measuring the future financial
performance and social influence of enterprises. Therefore, as an investment principle
integrating the environmental, social, and governance factors, ESG is an important driving
force to trigger the sustainable development of enterprises, and the interactive relationship
between its dimensions is also a key point that deserves attention. In order to promote the
global economy and society to improve in quality, this paper systematically reviews the
research on ESG and looks forward to the future development direction of ESG research.
The paper is structured as follows. Section 1, introduction including definition of ESG
and research background. Section 2, the literature related to the research of ESG is analyzed
including the theoretical basis of ESG, the interaction between the three dimensions of ESG,
the impact of ESG on economic consequences, the risk prevention role of ESG, and ESG
measurement. Section 3 is conclusions and future research.
This paper is expected to arouse the interest of stakeholders who care about and explore
the essence and significance of ESG, such as enterprises, government regulators, financial
institutions, and academic institutions. At the same time, this paper also provides a useful
reference and guidance for the promotion of further development and practice of ESG.
This was because we believe that the above areas are closely related to the ESG practice
of a company. In selecting the “topic,” we found that although ESG has been proposed,
there is no clear definition. Practitioners in various industries and scholars have given
different explanations. In order to comprehensively retrieve the literature needed in this
paper, after consulting the relevant literature, we found that ESG, corporate responsibility,
sustainability, and socio-environmental governance are used as synonyms (Garcia et al.,
2017) [11]. In addition, since ESG is derived from CSR, ESG and CSR are two terms that
can be used interchangeably (Garcia et al., 2017) [11]. Therefore, the “topic” includes envi-
ronmental, social, and governance (ESG), corporate social responsibility (CSR), corporate
responsibility, sustainability, and socio-environmental governance, which were used in the
final search of a total of 793 pieces of literature. The search showed that the related research
on the topic of ESG began in 2004. Then, CiteSpace was used to eliminate duplicates, and
593 pieces of literature were selected for bibliometric analysis.
2. The cooperation network among scholars is decentralized, and the degree of cooper-
ation is low.
CiteSpace is used in this study for author cooperation co-occurrence to demonstrate
the network and profile of author collaborations in the field. The timeline set here is from
2004 to 2020, and the time slice is set to 5 years. The resulting graph of the author cooper-
ation network is shown in Figure 2. After clustering, it can be observed that modularity =
0.8834, which is greater than 0.3, and silhouette = 0.9672, which is greater than 0.7, indi-
cating a significant and plausible clustering structure. As seen from the authors’ collabo-
ration map, ESG research has formed a collaborative network centered on the works of
Christopher Marquis, Caroline Flammer, Rodolphe Durand, Donal Crilly, George Ser-
afeim, Michael D. Pfarrer, Heli Wang, and other scholars. However, there is a lack of close
and extensive collaborative links between each team. In general, the network structure of
collaboration among scholars on ESG research is too fragmented, and the level of collab-
oration among scholars is low.
Figure 2.
Figure 2. Author
Authorcollaboration
collaborationnetwork. Source:
network. mapped
Source: by CiteSpace.
mapped by CiteSpace.
Through the analysis of the academic community, it can be seen that the current re-
search on ESG is mainly concentrated in developed countries, such as those in Europe and
the United States. However, the closeness of cooperation among scholars is not high and
is relatively scattered. Therefore, ESG research is still in the development stage.
Sustainability 2021, 13, 11663 6 of 28
Through the analysis of the academic community, it can be seen that the current
research on ESG is mainly concentrated in developed countries, such as those in Europe
and the United States. However, the closeness of cooperation among scholars is not high
and is relatively scattered. Therefore, ESG research is still in the development stage.
Figure Figure
3. Keyword co-occurrence
3. Keyword graph. Source:
co-occurrence graph.mapped
Source:by CiteSpace.
mapped by CiteSpace.
No. Freq Centrality Year Keywords No. Freq Centrality Year Keywords
corporate social re-
1 234 0.08 2004 26 22 0.04 2005 green
sponsibility
Sustainability 2021, 13, 11663 7 of 28
No. Freq Centrality Year Keywords No. Freq Centrality Year Keywords
corporate social
1 234 0.08 2004 26 22 0.04 2005 green
responsibility
2 140 0.06 2004 performance 27 22 0.03 2004 company
3 125 0.07 2007 sustainability 28 21 0.01 2009 reputation
competitive
4 113 0.08 2004 management 29 20 0.09 2004
advantage
financial
5 83 0.06 2006 30 20 0.06 2009 construction
performance
6 80 0.16 2004 firm 31 19 0.06 2008 capability
7 80 0.12 2004 impact 32 19 0.04 2012 determinant
8 80 0.06 2007 social responsibility 33 19 0.02 2016 CSR
stakeholder
9 74 0.07 2006 governance 34 19 0.02 2007
theory
resource based
10 71 0.1 2007 strategy 35 18 0.03 2011
view
11 61 0.07 2005 organization 36 18 0.03 2009 choice
corporate
12 61 0.06 2004 model 37 18 0.02 2012
governance
13 44 0.07 2006 perspective 38 17 0.06 2005 industry
14 38 0.13 2004 behavior 39 17 0.03 2010 competition
15 37 0.04 2007 business 40 16 0.04 2006 environment
16 33 0.04 2005 market 41 16 0.03 2012 ownership
financial
17 33 0.02 2006 responsibility 42 16 0.02 2016
performance
18 30 0.02 2010 firm performance 43 15 0.06 2006 consumer
19 29 0.03 2011 shareholder value 44 15 0.02 2009 information
20 29 0.03 2007 innovation 45 15 0.01 2015 philanthropy
21 27 0.06 2008 cost 46 15 0 2016 disclosure
22 27 0.04 2011 identity 47 14 0.02 2012 work
environmental
23 27 0.03 2005 legitimacy 48 14 0.02 2010
performance
24 24 0.01 2013 risk 49 14 0.01 2017 firm value
institutional
25 23 0.02 2011 50 14 0 2015 self-regulation
theory
Source: own elaboration based on CiteSpace.
Sustainability 2021, 13, 11663 8 of 28
No. Freq Centrality Year Keywords No. Freq Centrality Year Keywords
1 80 0.16 2004 firm 26 19 0.04 2012 determinant
2 38 0.13 2004 behavior 27 16 0.04 2006 environment
3 80 0.12 2004 impact 28 13 0.04 2005 framework
4 71 0.1 2007 strategy 29 9 0.04 2004 consequence
competitive
5 20 0.09 2004 30 29 0.03 2011 shareholder value
advantage
corporate social
6 234 0.08 2004 31 29 0.03 2007 innovation
responsibility
7 113 0.08 2004 management 32 27 0.03 2005 legitimacy
8 125 0.07 2007 sustainability 33 22 0.03 2004 company
resource based
9 74 0.07 2006 governance 34 18 0.03 2011
view
10 61 0.07 2005 organization 35 18 0.03 2009 choice
11 44 0.07 2006 perspective 36 17 0.03 2010 competition
12 140 0.06 2004 performance 37 16 0.03 2012 ownership
financial
13 83 0.06 2006 38 12 0.03 2005 quality
performance
social
14 80 0.06 2007 39 12 0.03 2008 knowledge
responsibility
15 61 0.06 2004 model 40 11 0.03 2009 response
16 27 0.06 2008 cost 41 10 0.03 2015 social movement
17 20 0.06 2009 construction 42 9 0.03 2006 product
18 19 0.06 2008 capability 43 7 0.03 2006 alliance
19 17 0.06 2005 industry 44 6 0.03 2005 commitment
20 15 0.06 2006 consumer 45 33 0.02 2006 responsibility
firm
21 7 0.06 2006 altruism 46 30 0.02 2010
performance
institutional
22 37 0.04 2007 business 47 23 0.02 2011
theory
23 33 0.04 2005 market 48 19 0.02 2016 CSR
stakeholder
24 27 0.04 2011 identity 49 19 0.02 2007
theory
Corporate
25 22 0.04 2005 green 50 18 0.02 2012
governance
Source: own elaboration based on CiteSpace.
research can be observed. Firstly, ESG research mainly focuses on the topics of happiness,
shareholder value, organizational performance, corporate philanthropy, transparency,
organization, and institutional theory (see Figure 3). Secondly, it can be observed from
the statistical results of keywords and burst terms that ESG research focuses on detailed
exploration of the three dimensions of environmental, social, and governance, while the
research taking ESG as a whole does not show an obvious trend.
(2014) studied the risk prevention role played by ESG [14], and Flammer et al. (2019)
studied the binding effect of social responsibility contracts on executives [15]. In general,
ESG research discusses the role of the legitimacy behavior of corporate in the sustainable
development of a company based on institutional theory.
In terms of stakeholder theory, Kölbel et al. (2017) studied the relationship between
corporate social irresponsibility and financial risk [16], Surroca et al. (2010) studied the
relationship between corporate responsibility and financial performance [17], Muller and
Kräussl (2011) studied the relationship between corporate charitable donations and return
on investment [18], and Flammer and Kacperczyk (2019) explored the impact of ESG prac-
tice on employee management [19]. In general, based on stakeholder theory, ESG research
suggested that enterprises that respond better to the ESG requirements of stakeholders will
perform better than irresponsible enterprises.
2.4.2. The Interaction between the Environmental (E), Social (S), and Governance (G)
Dimensions
The three factors of ESG are of great significance for the operation and sustainable
development of enterprises. It can be observed from the results of quantitative analysis in
this paper that the current research on ESG is mainly based on the environmental (E), social
(S), and governance (G) dimensions. At the same time, through our systematic literature
review, it can be observed that there are a considerable number of studies on the interaction
between E, S, and G. Therefore, this paper systematically summarizes the research on the
interaction between the environmental (E), social (S), and governance (G) dimensions.
1. Interaction Research of Environmental (E) Dimension
The environment has always been a central problem occupying academia’s concerns.
The environmental (E) dimension in ESG research mainly regards the interaction between
the environmental (E) and governance (G) dimensions. In the research on the interaction
between the environmental (E) and governance (G) dimensions, the related keywords
are management, governance, green, environment, and environmental performance. The
frequencies of the keywords are, respectively, 113, 74, 22, 16, and 14, and they all rank in the
top 48 (see Table 2). The centrality of the first four keywords is, respectively, 0.08, 0.07, 0.04,
and 0.04, and they all rank in the top 27 (see Table 3). Therefore, the interaction between
the environmental (E) and governance (G) dimensions is a hot spot of ESG research.
First, from the perspective of executive factors, Flammer et al. (2019) found that the
CSR contract drives the attention of executives to stakeholders, which can improve the
corporate governance and its impact on society and the environment in the long run. Thus,
integrating the environment and social performance into senior executive compensation
is of great importance [15]. Davidson et al. (2019) found that enterprises led by non-
materialistic CEOs have good performance in social responsibility, such as their treatment
of the environment, and this is positively correlated with stock price performance [20].
Second, from the perspective of stakeholder factors, Cheng et al. (2014) pointed out
that the excellent performance of corporate social responsibility strategies will bring better
financing channels. Specifically, the improvement in the participation of stakeholders
reduces the agent cost, and the increased transparency reduces the information asymmetry,
so the performance of social responsibility is negatively correlated with capital constraint,
leading to better financing channels. The environmental dimension is one of the factors
that promotes this relationship [21].
Among the studies mentioned in this paper, there is little research on the interaction
between the environmental (E) and social (S) dimensions, because the environmental (E)
dimension is usually attributed to the social (S) dimension in measurements and research.
2. Interaction between the Social (S) and Governance (G) Dimensions
From the ranking of word frequency and centrality of keywords, it can be seen that the
research hotspots of ESG focus on the social (S) and governance (G) levels. In the interactive
relationship between the social (S) and governance (G) dimensions, the related keywords
Sustainability 2021, 13, 11663 11 of 28
image and the need to enhance it are associated with social responsibility. CEOs being
narcissistic has a positive impact on the level and image of corporate social responsi-
bility [27]. Tang et al. (2018) examined the different roles and effects of narcissistic and
arrogant CEOs on corporate social responsibility. The research shows that narcissistic and
arrogant CEOs hold different attitudes about how many social responsibility activities
their companies should undertake. Narcissistic CEOs show more concern about social
responsibility than arrogant CEOs do. Further research carried out on this topic showed
that the positive relationship between CEOs with narcissistic traits and social responsibility
activities is reinforced when peer firms invest less in social responsibility activities than in
the firms that they run. Under the same conditions, the negative relationship between the
arrogant CEO and social responsibility activities has been strengthened [28]. In addition,
Davidson et al. (2019) studied the impact of CEO materialism on corporate social responsi-
bility performance. The research used data from the KLD database to calculate corporate
social responsibility scores and found that companies led by materialistic CEOs had more
“weaknesses” than “strengths,” which rendered a lower score on social responsibility. In
contrast, the social responsibility performance of companies led by non-materialistic CEOs
in terms of environment, diversity, and product safety can positively influence the stock
price of the company and the positive relationship between the “strengths” of corporate so-
cial responsibility and profitability. Thus, CEOs who seek material benefits are more likely
to invest in social responsibility activities with a desire to increase their interests, while
CEOs who are non-materialistic have the goal of increasing their shareholder value [20].
In terms of CEOs’ values and political ideologies, it is suggested that the fair market
ideology, as a psychological antecedent influencing the beliefs and moral feelings of senior
executives, influences the moral values and feelings of individuals. Specifically, senior
executives with business, economics, and legal educational backgrounds show a higher de-
gree of participation in social responsibility. This is because their educational backgrounds
lead to their belief in the relationship between corporate social performance and corporate
financial performance, which is derived from the fair market ideology (Hafenbrädl and
Waeger, 2017) [29]. In addition, in terms of the research on the relationship between political
ideology and social responsibility, Chin et al. (2013) found that liberal CEOs pay more
attention to social responsibility compared to those who believe in conservatism. When
CEOs have more power, their political liberalism regarding social responsibility will be
amplified. Meanwhile, the recent financial performance of the enterprise will have less of
an impact on the action of liberal CEOs in the aspect of social responsibility [30]. Further-
more, Gupta et al. (2019) pointed out that liberal CEOs are more likely to carry out social
responsibility activities. Moreover, they suggested that the extroversion and narcissism
characteristics of CEOs will amplify the relationship between liberal ideology and social
responsibility [31]. After research on the influence mechanism of CEOs’ liberal ideology
on social responsibility commitment, Gupta et al. (2021) studied how CEOs’ ideology
affects their peers’ appointment of senior positions in relation to social responsibility. It
was observed that, compared with liberal CEOs, when conservative CEOs set up senior
executive positions related to CSR, other companies were more likely to follow suit [32].
Moreover, such senior executive positions will have a positive impact on corporate social
responsibility (Fu et al., 2020) [25].
In terms of CEO demographic variables, the age of the CEO is also an important
factor affecting corporate social responsibility activities because of the characteristics of
large investment and the slow effect of social responsibility investment. Kang’s (2016)
research showed that CEOs due for retirement have a negative effect on social responsibility
commitment. However, this negative effect will weaken when they retire at a relatively old
age or they retain their positions in the BOD [33]. Furthermore, where CEOs come from
is a notable factor influencing their strategic decision-making styles. Notably, local CEOs
appear to make decisions that will benefit long-term growth by paying more state taxes and
being more socially responsible when compared with non-local CEOs. Hence, choosing
local CEOs is more likely to control the phenomenon of short-termism in management
Sustainability 2021, 13, 11663 13 of 28
(Lai et al., 2020) [34]. Similarly, from the perspective of social identity theory, Bertrand
et al. (2021) observed that when a local firm hires a non-local CEO, the firm needs to
demonstrate better performance in social responsibility practices and social performance
levels to increase its legitimacy and credibility in response to bias and pressure from the
outside, as a non-local CEO is perceived as an external leader by local stakeholders [35].
In addition to the direct effect of the above-mentioned senior executive factors on
social responsibility, the influence of senior executive governance on social responsibility
will also occur via other factors. Church et al. (2019) studied how the measurement basis
(financial or non-financial) affects the decision-making behavior of middle and senior
managers in social responsibility projects. The research found that when executives favor
corporate social responsibility, the level of social responsibility investment based on the
non-financial measurement is higher than that based on financial measurement. Moreover,
executives who support corporate social responsibility investment invest more based
on financial and non-financial measurement than based on financial measurement only.
Thus, non-financial measures increase the social attention of executives who support
corporate social responsibility, while social attention regulates their investment decisions in
turn [36]. In addition, Han et al. (2019) researched whether studying or training abroad will
affect the corporate social responsibility practice of private enterprises. It was found that
enterprises operated by executives with backgrounds of studying abroad show a higher
social responsibility performance level than that of enterprises led by local executives [37].
Luo et al. (2021) studied how executives with backgrounds of studying or working abroad
in the BOD influence social responsibility according to the data of listed companies in
China from 2000 to 2012. It can be observed that the existence of these returners has largely
improved these enterprises’ participation in social responsibility, especially in the form
of corporate donations [38]. In addition, Li and Lu (2020) developed a dual mechanism
model containing public agents (government officials) and private agents (CEOs) based on
“China’s 12th Five Year Plan” to study under what circumstances enterprises will respond
to the government initiative by increasing social responsibility. The research showed that it
is more likely for enterprises to take more CSR actions to respond to government initiatives
when the CEO has a greater interest in legitimacy. Specifically, CEOs are more likely to
take social responsibility actions when their tenure as a CEO is relatively short, and they
need legitimacy by building credibility. Thus, corporate social responsibility is an action
taken by CEOs to respond to external stress [39].
(2) The Social (S) Dimension and Stakeholder Factors
From the statistical results of the burst terms, it can be seen that the keywords repre-
sented by “stakeholder theory” and “incentive” are the focus of attention at the governance
(G) level (see Table 4). Secondly, the high-frequency words related to governance (G)
include management, governance, organization, behavior, shareholder value, identity,
capability, stakeholder theory, and ownership, which are closely related to stakeholder
factors (see Table 2). The participation of stakeholders is the key to ESG practice. Whether
these stakeholders can bring benefits to the enterprises through social responsibility ac-
tivities depends on whether these social responsibility activities can attract the attention
of stakeholders; namely, whether these social responsibility activities are valued by the
stakeholders (Madsen and Rodgers, 2015) [40]. Research on the relationship between
social responsibility practice and stakeholders is mainly concentrated on the interaction
between the social (S) dimension and employees and the interaction between the social (S)
dimension and investors.
1 The Impact of the Social (S) Dimension on Stakeholder Factors
Regarding the incentive effects for employees, Flammer and Luo (2015) found that
social responsibility can contribute to motivating employees and improving their workplace
behavior as an employee governance tool [41]. Moreover, Balakrishnan et al. (2011)
pointed out that employees’ contributions to enterprises will significantly increase with
the improvement in the enterprise donation level. Thus, social responsibility activities
serve as effective leverage to motivate employees to contribute for themselves and the
Sustainability 2021, 13, 11663 14 of 28
organization [42]. In addition, Carnahan et al. (2017) researched the relationship between
social responsibility investment and employee retention. They found that due to the
value preference of employees for meaningful work, the social responsibility practice of
enterprises may provide employees with more retention willingness [43]. Moreover, in
regard to the impact of social responsibility activities on human resource management,
Farooq et al. (2017) studied the relationship between social responsibility and employee
attitude and behavior. Their research showed that social responsibility activities focusing
on employee welfare may enhance perceived respect and further affect the organizational
identification of employees [44].
Regarding investors, Elliott et al. (2014) studied the relationship between corporate
social responsibility performance and investors’ assessment. It was observed that there
is an unexpected causality between corporate social responsibility performance and in-
vestors’ assessment of basic value, and investors’ explicit assessment of the corporate
social responsibility performance will weaken this relationship. The impact of investors
without a clear assessment of corporate social responsibility performance is unintentional,
because they inadvertently use their emotional response to corporate social responsibility
performance to estimate the basic value [45]. Hence, it is important to assess corporate
social responsibility (with an index or evaluation system), since it can affect the investment
decision of investors.
2 The Impact of Stakeholder Factors on the Social (S) Dimension
Regarding employees and the practice of social responsibility, employees exert a
significant influence on social responsibility as an important component of enterprises.
Muller et al. (2014) found that employees serve as a vital driving force for the charitable
efforts of enterprises, whose motivation may function through psychological factors such
as compassion [46]. Gupta et al. (2017) explained how the political beliefs of organizational
members shape the performance of social responsibility from a more detailed entry point,
from the perspective of organizational politics. The employee donations to the two major
political parties in the United States are considered a new measure of organizational politi-
cal ideology. The results show that enterprises with liberal employees are more engaged in
social responsibility activities than those with conservative employees. Therefore, social
responsibility activities may be shaped by the values of employees in the organization [47].
Investors also play an important role in the practice of social responsibility. Mun and
Jung (2018) pointed out that overseas institutional investors and local corporate social
responsibility experts impact the practice of social responsibility, mainly reflected in the in-
crease in the number of women in the BOD and management positions [48]. Naughton et al.
(2019) found that investors’ sentiments toward social responsibility activities change with
time, and their sentiments can exert some influence on the corporate social responsibility
commitment [49].
between ESG and economic consequences is a hot topic. For example, Awaysheh et al.
(2020) used the KLD database to measure the overall situation of ESG. They studied the
benchmarking of enterprises in the fixed effect of time and industry, identifying the best
(top 10%) and worst enterprises (last 10%). It was found that the best enterprises have a
higher level of operating performance and a higher relative market valuation than those
of their peers. When the governance (G) dimension is removed, the result remains un-
changed [51]. Research on the relationship between corporate social irresponsibility and
financial risks showed that the negative media coverage on the environmental, social, and
governance (ESG) issues will increase the credit risks of enterprises and lead to an increase
in enterprise financial risks (Kölbel et al., 2017) [16]. Moreover, different scholars measure
the sustainable development behavior of enterprises from different perspectives, which can
be divided into four types, namely, positive correlation, negative correlation, non-linear
relationship, and indirect relationship.
1. Positive Correlation
First, most of the existing studies on this topic measure ESG activities from the perspec-
tive of the combination of the environmental (E) and social (S) dimensions and empirically
test the relationship between ESG activities and corporate financial performance and
corporate value. Mackey et al. (2007) used the KLD database and concentrated on the
environmental (E) and social (S) dimensions, believing that there is a positive correlation
between ESG activities and corporate values [52]. Jayachandran et al. (2013) studied the
impact of corporate social performance (CSP) on corporate performance. The results of
the study using the classification measures of the social dimension (product social perfor-
mance) and environmental dimension (environmental and social performance) show that
compared with the environmental (E) dimension, the social (S) dimension has a stronger,
positive impact on corporate performance [13]. In addition, Flammer et al. (2019) studied
the effectiveness and implications of integrating environmental and social performance
standards into executive compensation. It was found that the contract not only alleviated
the myopia of enterprises but also improved corporate performance and corporate value
significantly, which indicates the increase in long-term operating profit. Moreover, enter-
prises using the contracts improve their environmental and social performance, especially
in the environment and local communities [15].
Secondly, we reviewed the studies that only focus on the environmental (E) dimen-
sion. Environmental social performance has a positive impact on corporate performance
(Jayachandran et al., 2013) [13], but environmental screening conditions reduce corporate
financial performance (Barnett and Salomon, 2006) [53]. Matsumura et al. (2014) studied
the impact of carbon emissions and voluntary disclosure of carbon emissions on corporate
value by collecting environmental performance data. It was found that carbon emissions
are inversely proportional to corporate value and that the decision and level of managers’
disclosure of carbon emissions are directly proportional to corporate value [54].
Finally, we also reviewed the studies that only focus on the social (S) dimension. God-
frey (2005) studied the relationship between philanthropic activities and shareholder wealth
and concluded that corporate philanthropy could generate positive moral capital between
communities and stakeholders. This kind of moral capital could provide shareholders with
an insurance-like mechanism of intangible values based on corporate relationships. This
protective mechanism could also help to increase shareholders’ wealth [55]. Wang and
Qian (2011) researched the relationship between corporate philanthropy and corporate
financial performance. Corporate philanthropy is expected to have a positive impact on
corporate financial performance because it helps companies to gain socio-political legit-
imacy, thereby enabling companies to receive positive stakeholder responses and gain
political opportunities. For companies with a higher public profile and companies with
better past performance, the relationship between positive philanthropy and performance
is stronger because of a more positive response from stakeholders to the philanthropy of
these companies. However, private companies or companies with no political connections
can benefit more from philanthropy because obtaining access to political resources is criti-
Sustainability 2021, 13, 11663 16 of 28
cal. Therefore, researchers believe that corporate philanthropy could improve corporate
financial performance by stimulating a positive response from key stakeholders, such
as employees, customers, and investors, and by obtaining political resources from the
government [56]. Furthermore, Kaul and Luo (2018) studied the conditions for corporate
social responsibility to provide positive benefits to the company, and found that if social
responsibility is related to a company’s core business or does not overlap with non-profit
activities, it can provide financial benefits to the company [57].
2. Negative Correlation
There is a negative relationship between ESG activities and economic consequences.
The research conducted by Manchiraju and Rajgopal (2017) showed a significant negative
correlation between corporate social responsibility and shareholder value [58]. Similarly,
the research conducted by Chen et al. (2018) found that the mandatory disclosure of
corporate social responsibility not only reduces performance but also increases social
responsibility costs, which generate positive externalities at the expense of shareholders’
interests [59].
3. Non-Linear Relationship
There are studies that show that the relationship between corporate sustainable devel-
opment behavior and financial performance is not linear. For example, the study conducted
by Barnett and Salomon (2006), which analyzed the relationship between social performance
and financial performance based on environmental (E) and social (S) dimensions, found
that financial returns began to decline as the number of social (S) dimensional screening
projects used by socially responsible investment increased. However, the financial returns re-
bounded again as the number of screenings continued to increase. In other words, the study
found a curve relationship [53]. Furthermore, Barnett and Salomon (2012) found a U-shaped
relationship between corporate social performance and corporate financial performance.
Specifically, companies with low CSP have higher financial performance than those with
medium CSP, but companies with high CSP have the highest financial performance. That is,
the companies with the highest CSP usually have the highest financial performance [60].
Moreover, Zhao and Murrell (2016) pointed out that corporate social performance may
not have a positive impact on corporate financial performance. On the contrary, there
is a complex relationship between corporate social performance and corporate financial
performance, so it cannot be simply said that doing good will do well [61].
4. Indirect Relationship
Surroca et al. (2010) found that there is no direct relationship between corporate social
responsibility and financial performance. Instead, mediating factors, such as innovation,
human capital, reputation, and culture, are required to form an indirect relationship [17].
The research conducted by Hull and Rothenberg (2008) found that supporting innovation
and the level of industry differences are factors that could regulate the positive relationship
between corporate social performance and financial performance [62]. Ramchander et al.
(2012) discovered the role of information asymmetry in explaining the relationship be-
tween corporate social responsibility and financial performance [63]. Similarly, the research
conducted by Lys et al. (2015) found that the positive correlation between corporate perfor-
mance and corporate social responsibility expenditure is more likely to be due to the signal
of corporate social responsibility expenditure [64]. Later, Hawn and Ioannou (2016), on
the basis of the neo-institutional theory, suggested that corporate social responsibility is
related to better market value by distinguishing between external and internal corporate
social responsibility actions [65]. Furthermore, Surroca et al. (2020) found that companies
are facing tremendous pressure to achieve short-term goals in a free market economy,
especially when companies participate in internally oriented corporate social responsibility
projects and the combination of managerial entrenchment provisions (MEPs) and corporate
social responsibility creates shareholder value. However, the combination of managerial en-
trenchment provisions (MEPs) and corporate social responsibility will destroy shareholder
value when corporate social responsibility is externally oriented [66].
Sustainability 2021, 13, 11663 17 of 28
Among the studies reviewed in this paper, few use governance (G) as a measurement
dimension to study the impact of ESG on corporate financial performance or corporate
value. The reason for this is that the influencing factors of the economic consequences of a
company should be a comprehensive manifestation of multiple dimensions. Although the
corporate governance structure could have an impact on it, a separate corporate governance
structure has little significance for the economic consequences of a company.
With regard to the governance (G) dimension. Gao et al. (2014) used the KLD database
to exclude the governance (G) dimension to construct a corporate social responsibility
net score and found the significant negative relationship between social good and inside-
trading of executives [23]. Flammer and Kacperczyk (2019) found that using corporate social
responsibility as a strategic tool to address the threat of knowledge encroachment from
competitors can not only reduce the tendency of employees to join competing companies,
but also decrease the possibility of valuable information leakage, even if employees join
competing companies [19]. In a recent study, Bertrand et al. (2021) focused on the social pillar
scores in the ESG scores of the Thomson Reuters ASSET4 database. It was observed that
CEOs can improve corporate social responsibility practices and corporate social performance
to respond to biases from outside when local companies have a foreign CEO [35].
quality, and corporate governance. At the same time, there are multiple sub-dimensions
within each dimension. For example, environmental issues include waste management,
environment, climate change, and water pressure. Social issues include the performance
of issues such as community participation, human rights, union relations, labor diversity,
and funding access. Governance issues include the implementation of issues such as
report quality, corruption, and political instability, financial system instability, governance
structure, and business ethics (Khan et al., 2016) [50]. In addition, the KLD database also
includes six exclusive screening categories, namely, alcohol, gambling, military contracting,
nuclear energy, and tobacco.
In terms of measurement, KLD is a binary system that includes “strengths” and
“concerns” (weaknesses). “Strengths” are policies, procedures, and results that can help
companies to produce a positive impact on key issues—that is, socially responsible behavior.
However, “concerns” are the opposite. In the KLD database, “1” is used to indicate the
existence of screening (standard), and “0” is used to indicate its absence. In other words,
if a company meets the description of the evaluation item, the company’s score is “1”.
Otherwise, it is “0”. Therefore, the overall evaluation project score reflects the overall level
of the company’s corporate social responsibility participation. Specifically, two methods
are used to measure ESG as a whole or in various dimensions. First, the KLD index can be
constructed by accumulating all of the “strengths” items related to research variables. In
addition, it can also be measured by constructing a “net” KLD index. The usual practice
is constructing the KLD index by calculating the difference between the total “strengths”
and the total “concerns” after accumulating the two indexes separately. However, studies
have shown that this method has certain shortcomings. Due to the lack of convergence
effectiveness of KLD’s “strengths” and “concerns,” it is difficult to provide an effective
corporate social responsibility measurement standard (Kacperczyk, 2009) [76]. Therefore,
the empirical analysis of ESG research focuses more on the cumulative method, and the
“net” KLD index can be used as a robustness test. In addition, there are studies performing
further processing based on the ESG score measurement method. The standardized scores
of each category in the selected categories are averaged to calculate the annual composite
score of each company. This kind of corporate social responsibility index can not only
conduct a simple assessment of corporate social responsibility actions, but is also usually
used by professionals to assess the degree of corporate social responsibility effort as a
comprehensive index (Chatterji et al., 2016) [73].
2. Measurement based on Thomson Reuters ASSET4 Database
Thomson Reuters ASSET4 specializes in providing objective, relevant, and systematic
non-financial ESG information and investment analysis tools for professional investors.
The database has been providing comprehensive corporate social responsibility data for
companies in the Russell 1000 since 2002. Its data sources generally include stock exchange
literature, annual financial, and sustainability reports, as well as the websites of non-
governmental organizations and various news sources. Its dedicated research analysts
collected 900 evaluation points for each company, and all data used must be objective and
public. After collecting the annual ESG data, analysts unified the units for quantitative
analysis of these qualitative data. The database mainly focuses on the finance, corporate
governance, environmental, and social aspects. In the environmental dimension, the data
include energy use, water recycling, carbon dioxide emissions, waste recycling, and spill
and pollution disputes. In the social dimension, the data include employee turnover, injury
rates, training hours, female employees, donations, and health and security disputes. In the
governance dimension, the data include executive compensation, board experience, board
diversity, anti-takeover devices, and pay-cheque disputes. The data are divided into two
categories: “drivers” and “outcomes.” “Drivers” refer to policies on issues such as emission
reduction, human rights, and shareholder rights. “Outcomes” refer to quantitative results
of greenhouse gas emissions, personnel turnover, and maximum salary packages.
Sustainability 2021, 13, 11663 20 of 28
Figure 4.
Figure 4. Research
Research progress
progress and
and future
future prospects.
prospects.
theory” is an important topic of ESG research. In terms of word frequency statistics (see
Tables 2 and 3), “institutional theory” became the focus of ESG research in 2011, with a
frequency of 23 and a centrality of 0.02, and “stakeholder theory” became the focus of
ESG research in 2007, with a frequency of 19 and a centrality of 0.02. In addition, from the
statistics of the burst terms (see Table 4), “stakeholder theory” became a hot topic from
2012 to 2013, with an intensity of 2.97. The decision making and sustainable development
of enterprises are interdependent with their stakeholders. Moreover, the production and
development of enterprises depend on their legitimate activities in the internal and external
environments. This is the reason for the current research’s focus on these two theories.
However, through a literature review, we found that there are also studies on natural-
resource-based theory, resource dependence theory, affect-as-information theory, place
attachment theory, upper echelons theory, signaling theory, agency theory, attribution the-
ory, transaction cost theory, system justification theory, and social identity theory. Different
studies start from different angles and objects to study the performance and effect of ESG
in various aspects. Therefore, ESG research appeared to be centralized and possess diverse
characteristics in terms of theoretical basis.
and the role of governance (G) in risk prevention. Therefore, in terms of the research hot topic
and contents, ESG research is more inclined to the perspective of internal governance.
An effective and consistent evaluation system is a standard for measuring the sus-
tainable development activities of various enterprises in the industry. In the literature, the
evaluation system used for ESG measurement is mainly based on the relevant data in the
KLD database and Thomson Reuters ASSET4 database. However, the overall ESG and the
standards of various dimensions measured by various databases lack uniformity. Most of
the evaluation systems are established using expert scoring, and so there is a certain degree
of subjectivity. At the same time, the database lacks applicability and feasibility based on
different national systems and industry backgrounds. Therefore, a unified and mature ESG
evaluation system is the foundation for the study of corporate sustainable development,
the key to the credibility of corporate social responsibility information disclosure, and a
quantitative standard for promoting the effectiveness of ESG practices. Simple, accurate,
and efficient quantitative methods guarantee the implementation of ESG concepts and are
also important modules that need to be further clarified in future research.
5. Promotion of the ESG practice of various organizations.
ESG is the core framework for enterprises to pursue sustainable development. In-
tegrating it into business management and investment decision making has become an
international passport for enterprises to practice sustainable development. Through the
analysis and summary of ESG research progress, we expect to provide substantive en-
lightenment and suggestions to enterprises, government regulators, financial institutions,
and academic institutions. Firstly, in terms of enterprises, companies should re-examine
internal governance to consider how to give full play to the positive impact of ESG on the
economic consequences with regard to the aspects of senior management appointment
and organizational structure design and employee training in order to actively build ef-
fective risk prevention and a “protection” mechanism. Secondly, in terms of government
regulators, based on fully understanding the importance of ESG practice in sustainable
development, reasonable policies, regulations, and information disclosure systems should
be formulated to standardize enterprise behavior. At the same time, the construction and
unification of the ESG evaluation system should be actively promoted to provide a basis for
the investment decision making of financial institutions. In addition, in terms of financial
institutions, through the systematic analysis of governance (G), we could provide more
detailed and comprehensive non-data investment decision-making information for finan-
cial institutions. Moreover, we assume that financial institutions will be able to provide
substantive suggestions for improving the ESG evaluation system from the perspective of
practice. Finally, in terms of academic institutions, through the review of ESG research, we
clarified the context of ESG research, summarized the characteristics of the past research in
terms of trends and content, and highlighted the shortcomings in order to propose several
future research directions and a vision for the future research of ESG.
Author Contributions: Writing: T.-T.L.; providing ideas and data: T.-T.L. and K.W.; providing revised
advice: T.S. and D.D.W. All authors have read and agreed to the published version of the manuscript.
Funding: This research was funded by Beijing Social Science Fund Project (grant number: 18GLC076).
Institutional Review Board Statement: Not applicable.
Informed Consent Statement: Not applicable.
Data Availability Statement: Not applicable.
Conflicts of Interest: The authors declare no conflict of interest.
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