A concise Analysis of financial performance of companies

¶ … environmental, social and governance (ESG) performance and financial performance of companies Investors are increasingly recognizing the fact that ESG (environmental, social, corporate governance) elements can substantially affect companies' security rates and financial performance. The aforementioned components' contribution to financial markets has been growing with the rise in number of ESG opportunities and risks within the contemporary international economy.

Timely and improved organizational policy-related data access and the effect of organizational policy on communities have made it considerably convenient for customers to express their dissatisfaction by simply quitting a brand. When international brands' images are sullied by ESG-related problems, the resultant instantaneous backlash has the capacity of abruptly and negatively impacting income and demand (Eccles, Ioannou & Serafeim, 2014).

Organizations having a poor reputation when it comes to ESG related matters are vulnerable to monetary risks, including a very genuine threat of facing lawsuits in the future, greater remediation and regulatory expense, vulnerability to natural and manmade catastrophes and potential loss of competitive edge to more creative, forward-thinking firms. Meanwhile, sound corporate citizenship will typically result in reduced personnel turnover rates, increased personnel productivity, superior customer loyalty and improved brand image; these aspects successively improve financial performance.

Instead of chancing the dissatisfaction of clients, stockholders and regulators, or blows to organizational business strategies, organizations are engaging in progressive attempts to moderate likely ESG risks; this may be taken as one means of safeguarding brand value as well as making sure their offerings (services/products) have stable demand in the market. Further, corporations are coming up with novel solutions for dealing with the universal sustainability-related challenges over several sectors. These keys may help bolster businesses' long-run competitive edge as well as financial performance (Eccles et al., 2014).

Investors aware of the significance of taking nonfinancial data into account in investment decision-making can effectively employ ESG factors for improved risk management and generation of surplus returns. 1.1. Background Traditionally, ESG problems and externalities like air and water pollution, unethical corporate practices, inferior work environments, etc. negatively affected stock prices and business functionality only in extreme scenarios. Consequently, organizations often overlooked them in their normal investment appraisal policies and practices.

In the same way, externalities also weakly influenced organizational executives' behavior owing to the lack of a perceptible feedback loop driving organizations to react to their non-financial problems and associated opportunities and risks to the company. Non-governmental organizations and regulators generally took care of negative externalities (Trunow and Linder, 2015). However, the past twenty years have witnessed a drastic transformation in the above dynamic, thanks, largely, to the speed with which information is transmitted on social media and the World Wide Web.

Additionally, corporate supply chain extension and globalization to encompass developing and sharp-end markets has contributed to increased focus on ESG externalities and issues as well, with corporate exposure to more geopolitical and geographical settings and regulatory systems. Developing economies' regulatory and legal systems are normally less effective as compared to industrialized economies' systems, rendering it more difficult for businesses to protect themselves from ESG issues. This leads to an added risk for businesses functioning in these parts (Ang, Lam & Zhang, 2016).

As emerging economies are identified by multinationals as an important source of income growth, inadequately dealing with local ESG may disrupt corporate supply chains or cause them to lose market opportunities, thereby appreciably affecting business operations. Firms' responses to the changing worldwide economic scene take the form of steps designed to tackle ESG opportunities and risks capable of affected corporate financial performance, which are coming to the attention of investors.

According to 2014 estimates, approximately 21.4 trillion dollars of professionally controlled assets worldwide applied ESG measures to investment analyses and portfolio composition (Global Sustainable Investment Alliance, 2015). Related regional information depicts that American AUM (assets under management) worth 6.57 trillion dollars clearly took ESG factors into account when investing and engaging in associated decision-making; this constituted a 76% rise compared to 2012 figures. European investment plans taking ESG into account similarly made up almost ten trillion Euros which is a 46% growth between 2012 and 2014 (Eurosif, 2010; Trunow and Linder, 2015).

While the above figures aren't to be trusted blindly, owing to the fact that most represent self-reported facts by individuals professionally managing assets and to the lack of an explicit definition of ESG criteria, the AUM data helps explain directional growth whilst offering a backdrop for market opportunities linked to responsible investing. 1.2.

Problem of the study Despite several decades of studies into the link of organizational economic performance with corporate social responsibility, a number of researchers continue to maintain that considerable investigation is still needed before they can thoroughly comprehend the aforementioned link. In particular, there is a need to construct models encompassing variables that are overlooked (Chong & Phillips, 2016). Hence, this research work aims at bridging the gap in literature, with regard to effects of management ESG elements combined, on corporate performance, to some extent (Schadewitz and Niskala, 2010).

This will be attempted through an inclusion of the synergistic influence of ESG's three facets in the above relationship. For examining ESG synergistic impacts, this research suggests an "inter-dimensional consistency" among ESG aspects, examining the way such consistency potentially impacts the economic performance-ESG linkage. 1.3. Study significance The research adds various elements to corporate practices and related literature. First and foremost, it furthers emergent works on consistency via an examination of the effect of ESG factors' correlations on overall company performance.

Furthermore, it develops numerous consistency measures on the basis of ESG factor strengths, comparing company results relative to peer groups. Additionally, it suggests three-tier ESG consistency for gauging corporate dedication and efficacy in establishing a competitive edge. It also employs, with regard to methodology, years 2011-14 panel data sets of EU-15 nations' listed companies. GMM (generalized method of moments) estimation will be applied for addressing dynamic endogeneity and probably unnoticed heterogeneity.

Lastly, it will confirm the fact that organizations displaying first-rate ESG performance won't essentially outdo rivals in every non-financial element of performance. The study outcome implies that every outstanding ESG firm doesn't retain inter-dimensional steadiness; however, they will be able to counterbalance the strengths in certain areas with their failings in other areas. 1.4. Research questions How far does an organization's ESG performance impact its performance in financial terms? Will this link be diluted by the organization's industry type? 2. Theoretical framework 2.1.

Corporate Social Responsibility ESG performance value is founded on the following two elements' convergence and interface: SRI (sustainable, responsible investment) and CR (corporate responsibility). The latter may be described as intentional organizational action geared at improving environmental and social performance, beyond minimum legal requirement (Freeman et al., 2010). Corporate responsibility investments are a type of intangible corporate asset associated with long-run performance and acquired through image and functioning linked advantages.

Functional advantages resulting from internal organizational activity (such as cost-cutting, output, and functional efficacy) will probably not display any certainty of success in the future. They will also be slow to surface. Concurrently, every corporate responsibility forms a prospective cause for positive client and market views of the organization (reputational advantages).

This indirectly impacts future revenue, as a good image boosts sales, reduces opportunity cost of investment, helps acquire and retain competent individuals from the labor market, and increases the readiness of customers to purchase products at a higher price and of investors to hold or purchase company stocks. Positive client and stockholder (existing and potential) attitudes to effective CR performance as well as executive team competence are included under reputational impacts (Ramiah, Martin and Moosa, 2013).

Besides, the distinctive aspect of corporate responsible as an accrual (contingent liability) is: its ability to alleviate litigation actions' severity if the future holds more rigid norms and increased number of taxes on account of increased social and environmental concerns (Godfrey, Merrill and Hansen, 2009). With new laws and standards, businesses within at-risk ESG segments are normally faced with further uncertainty, since corporate bottom lines are instantly impacted and cost pressures are enforced upon them.

A connected CR function deals with reduction of future costs or income outflows linked to legal requirements. But it is hard to ascertain the precise timing of these risks' occurrence. Stakeholder theory puts the CR aspect into operation. The theory describes a company stakeholder and combines stakeholder interests and corporate profit maximization objectives. Clients, stockholders, supplying entities, workforce, special interest organizations, non-government organizations, communities and regulators typically make up a company's stakeholders.

The contemporary CR concept has basically developed into the following 3 key stakeholder relation classes: environmental (E), social (S), and governance (G). For instance, workforce satisfaction enhances their motivation and retention rates, in addition to increasing development of novel patents, products, or deals. Via such long-run performance improvements, personnel satisfaction proves beneficial to stockholders (Edmans, 2011). Experts in the field have described organizational ESG performance with respect to corporate responsibility principles, CSR processes, and organizational policies, initiatives and organizational behavioral outcomes (Wood, 1991).

CEP or companies' environmental performance largely denotes organizational environmental management. This entails pollution prevention (state-of-the-art technologies or procedures employed in manufacturing), control (end of pipe processes that include physical equipment), and product management (improvements to product lifecycles through decreased material consumption, product reuse, and recycling). Organizational social performance denotes stakeholder management. The organization needs to take care of key stakeholders' (i.e., workforce, suppliers, and community) interests. The chief emphasis is organizational appraisal with regard to adherence to fundamental human rights norms and procedures.

Personnel relations indicate a company's employment systems and policies including personnel engagement, satisfaction with their job and firm, safety and health initiatives, and equality policies (Bauer et al., 2009; Edmans, 2011). Organizations' participation in the community encompasses contributions to charities, supporting academic and housing programs for poor groups in the community, an operational policy specific to sensitive nations, and volunteer programs. Supplier management entails how far the firm takes into consideration human rights in their constructor or supplier selection system.

For research purposes, organizational governance performance represents shareholder-rights levels which guarantee that executive team and lower level managers take action beneficial to long-run shareholders of the company (Gompers, Ishii and Metrich, 2003). It indicates, for instance, autonomous decision-making via a self-governing, qualified, and varied executive team, institutes key board committees and connects directorial team compensation with corporate or individual non-financial and financial goals. On the whole, the concept of CR indicates ESG elements' likely effect (as distinct intangibles) on risk profile and anticipated revenue in the future.

Share price effects are imperative when it comes to non-financial performance, according to the basic model of valuation. 2.2. Sustainable and Responsible Investment (SRI) Renneboog, Zhang, and Horst (2008) define SRI as a process of investment combining investment decisions and ESG factors having financial objectives. SRI share markets are often segregated into two parts: profit-seeking and values-driven on the basis of investment screens utilized in portfolio construction (Derwall, Kojedijk and Horst, 2011).

Their latter part or segment is linked to stockholders limited by norms, who include ethical conditions with a rationale that is unconnected to future organizational revenue. The SRI sector was dominated by negative screens for more than seven decades, when portfolios commonly excluded stocks in such controversial sectors as tobacco, alcohol, military, gambling, and firearms. According to Kacperczyk and Hong (2009), values-driven segments lead to inexpensive controversial stocks, with better anticipated returns.

This kind of stockholder conduct gives rise to market inefficiency if sin stocks get traded at values lying below their basic values. The researchers also discovered that greater abnormal rate of return in the form of compensation for out-of-market risks was linked to increased litigation risk. Positive deferential between anticipated and real earnings in case of sin sector firms is improbable. Therefore, sin-connected impacts are fairly constant with time, because of societal standards' widespread nature (Derwall et al., 2011).

Latest research works reveal that the SRI market's profit-seeking group comprises of stockholders who take ESG factors into account in their basic valuations, to achieve conventional monetary objectives. The approach in this segment makes use of positive screens, including stocks with superior ESG scores for portfolio construction.

Derwall and coworkers (2005) discovered that an environment-efficient, superior-ranked portfolio is linked to a greater abnormal rate of return as such shares are wrongly priced by the market within the short valuation sphere (in other words, the market under-reacts to ESG factors (market inefficiency)). Consistent with the aforementioned research, Borgers and colleagues (2012) and Greenwald (2010) discovered that ESG shares generally attain real returns announcements beyond estimated returns; market analysts predict surprises.

Additionally, Derwall and colleagues (2011) asserted that such market ineffectiveness vanishes once the market becomes aware of ESG influences on anticipated cash flows in the future. An examination of expectations assumption errors indicated that stocks' abnormal rate of return with sturdy personnel relations weakens with increase in valuation horizon, owing to investors' knowledge of erroneous prediction of future returns. Bebchuk, Wang, and Cohen (2013) first addressed governance's learning and dwindling impacts on abnormal revenue.

These authors' research findings suggest that sound governance isn't linked to abnormal returns following the learning phase's culmination as it gets included in stock price calculations. A different explanation for abnormal revenue is the mis-specifying of Fama-French-Carhart's 4-factor (or multifactor) model, unsupported by this study. The learning and prediction error assumptions are in line with the conventional efficient market standpoint pertaining to stock prices' complete reflection of every publicly available corporate data (such as ESG data).

The United Nations' Principles for Responsible Investment program has actively engaged in promoting ESG aspects' incorporation into ordinary investment decisions, reinforcing analyst knowledge of ESG elements' contribution to the precision of returns predictions and risk management. The United States' SIF (Social Investment Forum) and Europe's EUROSIF (Sustainable Investment Forum) predicted the 2012 SRI market's size at approximately fourteen and eleven percent AUM in Europe and America, respectively.

Eurosif's 2010 analysis of SRI markets indicated that the region's SRI market increased twice within the past couple of years in spite of the global financial downturn. Overall SRI AUM grew from the December 2008 figure of 2.7 trillion Euros to five trillion Euros in a one-year span. The 2012 American SRI report showed 3.74 trillion dollars' worth overall SRI assets by the end of 2011, which was a 22% growth from the 2009 figure. The same year's European SRI Analysis revealed 6.8 million Euros worth of assets at the end of 2011.

According to the UN PRI's 2012 statistics, almost 1100 parties across the globe having thirty-two trillion dollars' worth AUM, on the whole, had a policy that took ESG factors into account in investments. Mainstream financiers accounted for nearly three-quarters (seventy-three percent) of PRI parties. With the PRI's progress and emphasis on integrating ESG, one may expect that a better grasp of tangible effects of ESG elements on organizational performance in financial terms is growing in significance for organizations and their stockholders.

By and large, the SRI idea indicates that stockholders' activity of buying stocks associated with superior ESG ratings has been guided by wealth maximization effects, owing to the ESG aspects' positive impact on returns in future as well as positive expectations of the market, created by individual and institutional financiers beyond financial gains. Abnormal ESG-linked trading returns will continue till market participants become aware of the distinctions between ESG stragglers' and frontrunners' financial incomes, and take them into account in basic valuations. 2.3.

Measuring ESG performance Numerous rating agencies including Sustanalytics, Vigeo, Calvert GES, ASSET4, Trucos, and KLD gauge organizational ESG performance. The latter firm's ratings are counted among the first and highly prominent ones, particularly within the American stock market. They are also most commonly employed by research scholars in comparisons with more recent, global ratings like GES and ASSET4. The year 2009 witnessed the alliance of financial and ESG data providers for a wide collection of users including research scholars, stockholders and financial analysts.

Riskmetrics Group acquired esteemed ESG rating firms like Innovest Strategic Value Advisors and KLD; these firms were subsequently acquired by MSCI, an organization providing performance and risk data analysis and stock market indices. ASSET4, the recognized non-financial data provider was purchased by leading financial data firm, Thomson Reuters. Pfeiffer, Cho, and Lee's (2012) study findings revealed that KLD rating-derived CSR performance scores decrease data asymmetry. Informed financiers, particularly institutional financiers, capitalize on their data advantage in their assessment of businesses' market value.

In specific, they reveal that community, diversity ratings, and personnel relations decrease uncertainties in market data. Bad news or negative corporate responsibility performance scores depict a relatively higher effect on bid-ask extent (an information asymmetry proxy) as compared to good news or positive corporate responsibility performance. To sum up, KLD ratings utilize ESG negative and positive screens that point out an organization's weak spots and strong points, respectively. Individual screens are encapsulated as binary variables explaining whether or not firms satisfy specific conditions.

For reaching a given net score, academicians' widespread practice is: subtracting concerns from strong points (Chatterji, Levine and Toffel, 2009; Statman and Glushkov, 2009). Moreover, researches individually study KLD measurement systems. For instance, KLD environment concerns component has been employed in differentiating between worse and better performing firms (from an environmental perspective) (Cho and Patten, 2007) for casting firms depicting inferior environmental performance rating into light (Chatterji and Toffel, 2010). Previous studies steadily back the idea that KLD measures form dependable ESG performance proxies (Cho, Lee and Pfeiffer, 2012; Kim, Park, M. and Wier, 2012).

Of late, scholars have kept to applying other measures of ESG. A complex Innovest environmental efficiency measurement system (Derwall et al., 2005; Guenster et al., 2011) helped operationalize environmental efficiency, described as a simultaneous maximization of organizational process efficiency and minimization of their environmental impacts (Sinkin, Wright and Burnett, 2008). Olsson (2007), and Hassel and Semenova (2008a, 2008b) have formulated a multifactor approach to organizational environmental performance through the use of GES firm-specific environmental performance and preparedness measures as well as sector-specific environment risk ratings.

The environmental readiness outcome denotes how far the organization applies environmental policies and how far it reveals policy implementation to the public to indicate its proactive participation in environmental strategies. Meanwhile, the environmental performance outcome encompasses corporations' proactive functional capacity of decreasing environment-related vulnerabilities and effects by means of environment-oriented competences and resources. Lastly, environmental industrial risk may be described as the sector's overall environmental risks. Hence, environmentally-sensitive industries such as mining and metals, paper and pulp, gas, oil, chemicals, etc. depict higher environmental industry-level risk scores.

Additionally, Hassel, Nilsson and Semenova (2010) examined how stock prices are impacted separately by different GES individual-organizational social performance scores. These GES indices assess management of organizations' bonds with their workforce, suppliers and the communities they are responsible for, in terms of globally-accepted human-rights standards. Organizations are assessed under the following social performance categories (I) personnel, including safety and health policies, work hours and pay, coerced or child labor, diversity, etc.; (II) suppliers, encompassing human rights initiatives, supply chain firms, etc.; and (III) community, encompassing community engagement initiatives and policies.

Numerous research works examine ESG ratings' validity. Sharfman (1996) studied a collective KLD organizational social performance measure's construct validity by comparing information in a Fortune repute/image survey and from the asset list of most well-known mutual funds chosen for social performance'. The researcher linked multiple KLD rating combinations with three groups of general organizational social performance measures. Linkage analysis outcomes suggested that the KLD organizational social performance scores were moderately linked to other organizational social performance measures, thus measuring the very same concept, at least partially.

The application of descriptive factor analyses by Berman and Mattingly (2006) in their methodological research aimed at grouping KLD organizational social performance elements into 4 covert constructs gleaned from existing organizational social activity typologies chiefly revealed that KLD strengths and concerns facets are theoretically as well as practically specific organizational social activity constructs. Semenova's 2010 study findings depicted that GES, ASSET4 and KLD environmental scores exhibit convergent constancy and validity across low and high risk sectors.

Outcomes suggest that ASSET4 and GES environmental performance scores and KLD environment strengths represent reliable cumulative measures converging on an identical construct. On the other hand, KLD environmental weaknesses are typically risk-specific measures of environmental actions linked intimately to GES environmental sector risk. Cho and coworkers' (2012) study is in line with the aforementioned research work; this research time proposed that further studies into the area ought not to employ net KLD scores.

The rationale is: ensuring they do not lose data inherent in fundamental positive and negative KLD performance measures. Further, past research has scrutinized ESG performance reported in organizations' independent sustainability reports and yearly financial reports (Cormier and Magnan, 2007; Schadewitz and Niskala, 2010). The year 2008 witnessed more corporations publishing GRI (Global Reporting Initiative)-based sustainability reports than ever before. Almost 8% of the greatest 250 corporations across the globe currently report their ESG performance. Out of these, 4% report on a combined basis.

But researchers have raised questions with regard to the applicability of voluntary ESG performance disclosure, contending that they vary in terms of their content and scope, in addition to having limited utility in ESG performance measurement (Barth and Mcnichols, 1994; Hedberg and Malmborg, 2003; Clarkson et al., 2008; Tagesson et al., 2009). Bouvain and Chen (2009) draw attention to the fact that some organizations possess a long history of non-financial data-reporting across the entire continuum of ESG aspects. Meanwhile, other firms offer limited or no data.

Semenova and coworkers (2010) assert that organizational report content analyses may result in conflicting findings when one studies the association of corporate market value and performance in terms of ESG factors with ESG disclosures. This is because researchers fail to distinguish between disclosure type (i.e., optional and mandatory), combine ESG performance elements, employ multiple indicators for assessing voluntary disclosures by firms, and are bound by time constraints.

Past research presumes that a relationship might exist between ESG scores and underlying disclosure of organizations because rating firms scrutinize these facts alongside alternate sources with time, before undertaking measure construction (Cho et al., 2012). Inclusive third-party scores on corporate ESG performance aim at aiding stockholders in undertaking informed decision-making. GRI attempts at formulating a reporting system by strongly underscoring corporate ESG performance, to offer stakeholders comparable, applicable, and important facts.

One may expect a gradual shift in emphasis from separate sustainability reports and financial data to a linked or unified sort of reporting in which every relevant fact in the assessment and appraisal of organizational management quality, company value, performance, and effect are delineated comprehensively. On the whole, ESG score development illustrates a slow assimilation of non-financial and financial measures for acquiring an inclusive picture of long-run corporate risk and performance (Hassel & Semenova, 2013).

Solitary past ESG performance statistics such as pollutant emission measures are not all that useful or interesting from a basic evaluation standpoint as well as from the primary multidimensional conceptual ESG performance construct. 3. Methodology 3.1. Sample Selection This research's sample will comprise of firms whose names feature on EU-15 members' stock exchanges from 2011 -- 15 and who report their ESG information in the ASSET4 database. The research work will examine EU-15 members, considering likely regional differences in the ESG-Equator Principles (EP) relationships.

The studied time series, however, ends with 2014 on account of structural modifications set off by the European Union's renewed CSR strategy for 2011-14 (EU Commission, 2011). The approach had the potential to produce a mediating impact, applied by CSR-related EU national policies subsequent to the year 2012. Information from 3809 business-year reports and 506 businesses marks the point at which the sample choice process commences. This research will apply a dependent variable lag-structure on the basis of past research. The structure will, however, exclude year-2012 observations.

Furthermore, for this research, organizations not having information for a specific year will be excluded, as their inclusion may lead to unreliable estimations. Considering the aforementioned criteria, the ultimate study sample will encompass 3071 business-year observations and 460 companies (Ferrero-Ferrero, Fernandez-Izquierdo & Munoz-Torres, 2016). But, with a goal to apply a strong and dynamic strategy, organizations failing to offer ESG scores for any year will be excluded at the beginning.

The narrowed-down sample will comprise of a lopsided panel of 2835 business-year observations and 373 companies, as 87 firms lack adequate ESG information over time for satisfying this condition. Nevertheless, outcomes will be tested in the earlier non-limited disturbed panel for tackling ESG disclosure-linked bias. Facts will be taken from the ASSET4 Thomson Reuters database that only utilizes publicly available facts. According to Schafer and colleagues (2006), this database offers clear, unbiased, comparable, auditable, and organized ESG and economic data, providing a broad platform to institute benchmarks for organizational performance evaluation.

The Asset4 database comprises of more than 250 major performance markers grouped under eighteen classes in the 4 dimensions listed as follows: (1) economic (2) environment (3) corporate governance and (4) social performance scores. No Luxemburg-based company will be used in the research as the database lacks ESG data on these companies. 3.2.

Variables Economic dimension (termed 'ECONOMIC' in the study's linear regression model) will be its dependent variable, gauged via the ASSET4 economic performance result which computes organizational capability of achieving sustainable growth as well as high ROI (returns on investment) by means of effective utilization of all non-financial and financial resources at its disposal. The above proxy reflects general corporate financial wellbeing and ability of producing long-run revenue. Economic performance information is provided in relation to an industrial representative group, gauged using median.

Other researchers (Luo et al., 2015; Ferrero-Ferrero et al., 2016) state that industries are defined by SIC (Standard Industrial Classification) codes. In this research work, single-digit SIC codes will be employed in view of its sample size as well as scale for defining relative yardsticks. Thus, the study's ECONOMIC variable may be described as the difference of an organization's result and median ECONOMIC scores for every listed company within the very same single-digit SIC as well as from the nation wherein the organization is registered for any given year.

With regard to independent variables, the research will consider the following non-financial variables, namely: (i) ESG inter-dimensional consistency (INTER-DIMENSIONAL CONSISTENCY) and (ii) ESG performance level (ESG. In accordance with earlier papers (Eccles et al., 2014; Chong & Phillips, 2016), the research works will gauge ESG performance levels for individual companies and individual years, building a complex index that gives equal significance to each ESG component. The variable will enable research hypothesis/question testing.

With regard to ESG inter-dimensional consistency, the research will develop three distinct ESG constancy tiers on the basis of organizational ESG-factor strengths. By strength, it is implied here that an organization's ESG performance is on par with or surpasses peer group performance. The study will ascertain strengths by examining non-financial dimension-linked categories.

ASSET4 particularly arranges ESG's environmental component into 3 groups (resource-saving, product innovation, and emission decrease), social component into 7 groups (human rights, community and society, employee opportunity, product responsibility, development and training, safety and health, and employment quality), and governance into 5 groups (strategy and vision, compensation and benefits program, shareholder rights, and board duties and structure).

Consistent with prior studies (Laroche & Salesina, 2016), the research will the central tendency measure of median to gauge performance; it will be a group statistic for individual categories within individual industries, nations and years, enabling identification of companies with strengths on par with or surpassing the median. In this respect, Liden and colleagues, in their 2006 study, employed the median for examining member-leader exchange differentiation impacts on group and individual performance.

Surroca, Tribo, and Kim (2014) describe companies' and stockholders' ethical conduct based on whether corporate ethics scores featured below or over the median for related years and industries. Luo and Tang (2014) calculated carbon-pollution alleviation levels considering whether or not the company's emission intensities were less than the industrial median, as this measure proves to be more comparable on an industry-wide level compared to absolute emission information.

Similarly, Salesina and Laroche (2016) employed an indicator variable based on sample medians for isolating companies which utilized high-performance task-based practices the least and most intensively. This research work will employ 7 indicator variables for isolating companies with positions on par with or above the industrial median in every category for every facet, for a couple of distinct facets, or for all 3 facets.

In this respect, in the foremost ESG consistency level, indicator variables only detect companies possessing strengths in every category of every facets, independently and, in fact, depict consistency in case of individual facets without representing inter-dimensional consistency of any sort. The next level (two-dimensional consistency) represents performance uniformity with regard to every category linked to two non-financial facets. For example, an organization shows social and environmental consistency, exhibiting on-par or superior performance in both facets in relation to its peer group, irrespective of its governance position.

Using strength as marker for individual facets, this research work will construct a novel collection of indicator variables for identifying organizations collectively showing strengths in any two facets. The third and last level signifies ESG inter-dimensional consistency, linked to the study question. This research will employ an indicator variable for isolating companies with strengths in every ESG area. Aiming to test ESG-EP linkage asymmetries based on inter-dimensional consistency, the research will multiply ESG performance with indicator variables.

In line with prior empirical studies and concentrating on the control variables (Ferrero-Ferrero et. al., 2016), company-specific variables potentially impacting corporate economic performance may be defined as follows: natural logarithm of overall assets as size measure (SIZE); overall debt for every unit of overall assets, serving as capital structure proxy (LEVERAGE); capital expenses (CAPEX) divided by overall assets as investment ratio proxy; and yearly sales growth rate as growth measure (GROWTH). Further, the link between financial and environmental performance is macroeconomics-based: contraction or growth period.

The financial sector contributes significantly to economic growth. Unique sectoral characteristics like self-regulation (for instance EP) or overt external economic advantages (like public funds for bailing troubled financial institutions out) might impact economic performance. Hence, this research work will utilize an extra indicator variable for reflecting insurance and finance sector divergence (FINANCIAL INDUSTRY) from other sectors.

To address regional legal system-related peculiarities, the research will employ Cuomo and Zattoni's (Ferrero-Ferrero et al., 2016) condition for classifying nations based on the origin of their legal systems (ENGLISH SYSTEM) (GERMAN SYSTEM) (FRENCH SYSTEM) (SCANDINAVIAN SYSTEM).