The influence of corporate governance factors on ESG rating of industrial and IT companies

Abstract

The article examines the impact of сorporate governance factors on the еnvironmental, social, and governance rating in companies from industrial and IT sectors. The aim of this study is to identify and measure the impact of corporate governance factors on ESG rating in industrial and IT sectors. The research also includes a country-specific analysis: for European, Asian and American companies. The dependent variable is ESG rating — an indicator of the company’s compliance with environmental, social and governance standards. The paper considers observations of 80 companies since 2005 to 2020. The results of this study showed that the most significant practices in European companies are the presence of a policy of independence of the board of directors and an increase in the percentage of non-executive members. For Asian companies, corporate governance factors such as the presence of a policy of independence of the board of directors, an increase in the percentage of non-executive directors effect positively. For American companies, the following practices positively influence the ESG rating — the existence of a policy of independence of the board of directors and the corporate social responsibility committee and an increase in the percentage of women on the board of directors. In terms of sectors, the results showed that information technology companies are positively affected by an increase in the percentage of non-executive members, the presence of a corporate social responsibility committee, and an increase in average age. Also, if the chairperson is a woman the chances of getting a higher ESG rating increase. In industrial sector companies, the presence of a corporate social responsibility committee and a policy of independence of the board of directors, as well as the fact that the chairman was a CEO, are positively affected. These results can be used by companies to develop a plan to improve corporate performance.

Keywords:

ESG rating, corporate factors, board efficiency, gender diversity, age diversification