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Modeling the link between environmental, social, and governance disclosures and scores: the case of publicly traded companies in the Borsa Istanbul Sustainability Index

Author

Listed:
  • Mustafa Tevfik Kartal

    (European University of Lefke
    Lebanese American University)

  • Serpil Kılıç Depren

    (Yildiz Technical University)

  • Ugur Korkut Pata

    (Lebanese American University
    European University of Lefke)

  • Dilvin Taşkın

    (Yaşar University)

  • Tuba Şavlı

    (Yeditepe University)

Abstract

This study constructs a proposed model to investigate the link between environmental, social, and governance (ESG) disclosures and ESG scores for publicly traded companies in the Borsa Istanbul Sustainability (XUSRD) index. In this context, this study considers 66 companies, examining recently structured ESG disclosures for 2022 that were published for the first time as novel data and applying a multilayer perceptron (MLP) artificial neural network algorithm. The relevant results are fourfold. (1) The MLP algorithm has explanatory power (i.e., R2) of 79% in estimating companies’ ESG scores. (2) Common, environment, social, and governance pillars have respective weights of 21.04%, 44.87%, 30.34%, and 3.74% in total ESG scores. (3) The absolute and relative significance of each ESG reporting principle for companies’ ESG scores varies. (4) According to absolute and relative significance, the most effective ESG principle is the common principle, followed by social and environmental principles, whereas governance principles have less significance. Overall, the results demonstrate that applying a linear approach to complete deficient ESG disclosures is inefficient for increasing companies’ ESG scores; instead, companies should focus on the ESG principles that have the highest relative significance. The findings of this study contribute to the literature by defining the most significant ESG principles for stimulating the ESG scores of companies in the XUSRD index.

Suggested Citation

  • Mustafa Tevfik Kartal & Serpil Kılıç Depren & Ugur Korkut Pata & Dilvin Taşkın & Tuba Şavlı, 2024. "Modeling the link between environmental, social, and governance disclosures and scores: the case of publicly traded companies in the Borsa Istanbul Sustainability Index," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-20, December.
    • Handle: RePEc:spr:fininn:v:10:y:2024:i:1:d:10.1186_s40854-024-00619-1
    DOI: 10.1186/s40854-024-00619-1
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    References listed on IDEAS

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    More about this item

    Keywords

    ESG disclosures; ESG scores; New ESG reporting scheme; Artificial neural network; Borsa Istanbul Sustainability Index; Türkiye;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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