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Introduction
Environmental, social, and governance factors, collectively known as ESG factors, is a term used in the capital markets to refer to a company's non-financial performance. In 2006, the United Nations Environment Programme Finance Initiative and United Nations Global Compact, investment industry, and intergovernmental and governmental organisations collaborated to create the United Nations Principles for Responsible Investment (UN-PRI). The goals of the UN-PRI are to understand the implications of ESG and to support investors in integrating these issues in their investment practices (UN PRI, 2015). UN-PRI requests investors to consider ESG issues when evaluating the performance of any company (Caplan et al. , 2013). Given the quantum of investment funds managed by the UN-PRI signatories, the public-listed companies are compelled to engage in and report their ESG activities. Responsible investors will consider a company's performance in the ESG factors in addition to its financial performance when making investment decisions.
Therefore, investors and stakeholders are concerned about the ESG factors of a company to know where the company invests money and how the company conducts business. The environmental concerns of investors and stakeholders, for instance, are natural environment protection, climate change, and environmental impacts arising from a business operation. The social factors important to stakeholders are human rights, equality, diversity in the workplace, and contribution to the society. Some of the concerned governance issues are ownership structure, board independence, equitable treatment of shareholders, minority shareholders' rights, transparency, and disclosure of corporate information.
The literature refers to the broad class of investment practice by a variety of names that integrates the consideration of ESG factors, given the considerable acceptance of the UN-PRI among investors (Eccles and Viviers, 2011). Some of the more familiar ones include: socially responsible investment (e.g. Abramson and Chung, 2000; Statman, 2008), ethical investment (e.g. Mackenzie and Lewis, 1999; Schwartz, 2003), social investment (e.g. Cox et al. , 2007; Dunfee, 2003), responsible investment (e.g. Dembinski et al. , 2003; Thamotheram and Wildsmith, 2007; Viviers et al. , 2009), and sustainable investment (e.g. Koellner et al. , 2007; Weber, 2005). Aust (2013) opines that although there are some differences, corporate social responsibility (CSR) can be generally understood as roughly equivalent to ESG.
There is a growing body of study on ESG, especially based on developed...