IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/120410.html

ESG principles: the limits to green benchmarking

Author

Listed:
  • DiMaria, charles-henri

Abstract

Taxonomy and efficiency assessments provide financial intermediaries (FIs) with guidance to grant funds according to the Environmental, Social and Governance principles. The EBRD provides a classification of industries according to a priori potential risk (low, medium or high). Using a panel of 28 industries in Luxembourg (2008-2019) and National Account data (NA), we challenge this taxonomy. We compute Data Envelopment Analysis (DEA) efficiency scores indicating if an industry could increase output while simultaneously lowering the emission of greenhouse gases. Our results show that EBRD low risk industries are the most efficient ones. Surprisingly, high-risk industries are more efficient than medium-risk ones, suggesting a potential unintended outcome of the EBRD taxonomy—limiting credit to industries classified as high risk that are in fact more efficient than industries classified as medium risk.

Suggested Citation

  • DiMaria, charles-henri, 2024. "ESG principles: the limits to green benchmarking," MPRA Paper 120410, University Library of Munich, Germany, revised 2024.
    • Handle: RePEc:pra:mprapa:120410
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/120410/1/MPRA_paper_120410.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chen, Yenpao & Guo, Ruey-Ji & Huang, Rao-Li, 2009. "Two stages credit evaluation in bank loan appraisal," Economic Modelling, Elsevier, vol. 26(1), pages 63-70, January.
    2. Hou Xiaoyu, 2023. "Corporate ESG Performance and Financing Constraints: Empirical Evidence from Chinese Listed Companies," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 13(5), pages 1-4.
    3. Daniel Cash, 2018. "Sustainable finance ratings as the latest symptom of ‘rating addiction’," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 8(3), pages 242-258, July.
    4. Jun, Eunju & Joon Kim, Won & Hoon Jeong, Yong & Heung Chang, Soon, 2010. "Measuring the social value of nuclear energy using contingent valuation methodology," Energy Policy, Elsevier, vol. 38(3), pages 1470-1476, March.
    5. Wang, Qunwei & Zhao, Zengyao & Zhou, Peng & Zhou, Dequn, 2013. "Energy efficiency and production technology heterogeneity in China: A meta-frontier DEA approach," Economic Modelling, Elsevier, vol. 35(C), pages 283-289.
    6. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    7. Degryse, Hans & Goncharenko, Roman & Theunisz, Carola & Vadasz, Tamas, 2023. "When green meets green," Journal of Corporate Finance, Elsevier, vol. 78(C).
    8. Michael Cappucci, 2018. "The ESG Integration Paradox," Journal of Applied Corporate Finance, Morgan Stanley, vol. 30(2), pages 22-28, June.
    9. Christopher O’Donnell & D. Rao & George Battese, 2008. "Metafrontier frameworks for the study of firm-level efficiencies and technology ratios," Empirical Economics, Springer, vol. 34(2), pages 231-255, March.
    10. Li, Lan-bing & Liu, Bing-lian & Liu, Wei-lin & Chiu, Yung-Ho, 2017. "Efficiency evaluation of the regional high-tech industry in China: A new framework based on meta-frontier dynamic DEA analysis," Socio-Economic Planning Sciences, Elsevier, vol. 60(C), pages 24-33.
    11. Giovanni Trovato & Marco Alfó, 2006. "Credit rationing and the financial structure of Italian small and medium enterprises," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 167-184, May.
    12. Chiu, Ching-Ren & Liou, Je-Liang & Wu, Pei-Ing & Fang, Chen-Ling, 2012. "Decomposition of the environmental inefficiency of the meta-frontier with undesirable output," Energy Economics, Elsevier, vol. 34(5), pages 1392-1399.
    13. Léopold Simar & Paul W. Wilson, 1998. "Sensitivity Analysis of Efficiency Scores: How to Bootstrap in Nonparametric Frontier Models," Management Science, INFORMS, vol. 44(1), pages 49-61, January.
    14. van den Bergh, Jeroen C.J.M., 2008. "Environmental regulation of households: An empirical review of economic and psychological factors," Ecological Economics, Elsevier, vol. 66(4), pages 559-574, July.
    15. Huijts, Nicole M.A. & Midden, Cees J.H. & Meijnders, Anneloes L., 2007. "Social acceptance of carbon dioxide storage," Energy Policy, Elsevier, vol. 35(5), pages 2780-2789, May.
    16. Subodh Kumar & R. Robert Russell, 2002. "Technological Change, Technological Catch-up, and Capital Deepening: Relative Contributions to Growth and Convergence," American Economic Review, American Economic Association, vol. 92(3), pages 527-548, June.
    17. Florian Berg & Julian F Kölbel & Roberto Rigobon, 2022. "Aggregate Confusion: The Divergence of ESG Ratings [Corporate social responsibility and firm risk: theory and empirical evidence]," Review of Finance, European Finance Association, vol. 26(6), pages 1315-1344.
    18. Giovanni Trovato & Marco Alfò, 2006. "Credit Rationing and the Financial Structure of Italian Small and Medium Enterprises," Journal of Applied Economics, Taylor & Francis Journals, vol. 9(1), pages 167-184, May.
    19. Ghosh, Saibal, 2023. "Does climate legislation matter for bank lending? Evidence from MENA countries," Ecological Economics, Elsevier, vol. 212(C).
    20. Aaron K. Chatterji & Rodolphe Durand & David I. Levine & Samuel Touboul, 2016. "Do ratings of firms converge? Implications for managers, investors and strategy researchers," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1597-1614, August.
    21. Harry X. Wu & Esther Y. P. Shea & Alice Shiu, 2015. "Has China's fast industrial growth been efficient? An industry-level investigation with a newly constructed data set," Applied Economics, Taylor & Francis Journals, vol. 47(40), pages 4275-4298, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hao Zhang & Jianxin You & Xuekelaiti Haiyirete & Tianyu Zhang, 2020. "Measuring Logistics Efficiency in China Considering Technology Heterogeneity and Carbon Emission through a Meta-Frontier Model," Sustainability, MDPI, vol. 12(19), pages 1-18, October.
    2. Ying Li & Yung-Ho Chiu & Liang Chun Lu, 2018. "Regional Energy, CO 2 , and Economic and Air Quality Index Performances in China: A Meta-Frontier Approach," Energies, MDPI, vol. 11(8), pages 1-20, August.
    3. Martijn J. Burger & Kostas Kounetas & Oreste Napolitano & Spyridon Stavropoulos, 2022. "Do innovation and human capital actually narrow the technology gap? Champions and laggards of European regional productive performance," Regional Studies, Taylor & Francis Journals, vol. 56(10), pages 1655-1670, October.
    4. Tzu Kuan Lin & Fang Chen Kao, 2025. "Assessing the Impact of ESG Performance on Firm Competitiveness: A Meta-Frontier DEA and OLS Regression Analysis of Global Optical Component Firms," SAGE Open, , vol. 15(4), pages 21582440251, October.
    5. Lin, Ruiyue & Peng, Yudan, 2024. "A new cross-efficiency meta-frontier analysis method with good ability to identify technology gaps," European Journal of Operational Research, Elsevier, vol. 314(2), pages 735-746.
    6. Yu, Junqing & Zhou, Kaile & Yang, Shanlin, 2019. "Regional heterogeneity of China's energy efficiency in “new normal”: A meta-frontier Super-SBM analysis," Energy Policy, Elsevier, vol. 134(C).
    7. Fei, Rilong & Lin, Boqiang, 2016. "Energy efficiency and production technology heterogeneity in China's agricultural sector: A meta-frontier approach," Technological Forecasting and Social Change, Elsevier, vol. 109(C), pages 25-34.
    8. Bin Zhang & Minmin Ma & Yung-ho Chiu, 2024. "Considering the impact of geographic location and climate on China’s environmental efficiency based on a meta dynamic non-radial DDF," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(3), pages 7903-7926, March.
    9. Ding, Tao & Yang, Jie & Wu, Huaqing & Liang, Liang, 2022. "Land use efficiency and technology gaps of urban agglomerations in China: An extended non-radial meta-frontier approach," Socio-Economic Planning Sciences, Elsevier, vol. 79(C).
    10. Kounetas, Kostas & Napolitano, Oreste, 2018. "Modeling the incidence of international trade on Italian regional productive efficiency using a meta-frontier DEA approach," Economic Modelling, Elsevier, vol. 71(C), pages 45-58.
    11. Wang, H. & Zhou, P. & Wang, Qunwei, 2016. "Constructing slacks-based composite indicator of sustainable energy development for China: A meta-frontier nonparametric approach," Energy, Elsevier, vol. 101(C), pages 218-228.
    12. Yongqi Feng & Haolin Zhang & Yung-ho Chiu & Tzu-Han Chang, 2021. "Innovation efficiency and the impact of the institutional quality: a cross-country analysis using the two-stage meta-frontier dynamic network DEA model," Scientometrics, Springer;Akadémiai Kiadó, vol. 126(4), pages 3091-3129, April.
    13. Hang, Ye & Sun, Jiasen & Wang, Qunwei & Zhao, Zengyao & Wang, Yizhong, 2015. "Measuring energy inefficiency with undesirable outputs and technology heterogeneity in Chinese cities," Economic Modelling, Elsevier, vol. 49(C), pages 46-52.
    14. Wen-Chi Yang & Wen-Min Lu, 2023. "Achieving Net Zero—An Illustration of Carbon Emissions Reduction with A New Meta-Inverse DEA Approach," IJERPH, MDPI, vol. 20(5), pages 1-20, February.
    15. Wijesiri, Mahinda & Yaron, Jacob & Meoli, Michele, 2017. "Assessing the financial and outreach efficiency of microfinance institutions: Do age and size matter?," Journal of Multinational Financial Management, Elsevier, vol. 40(C), pages 63-76.
    16. Fan, Jing-Li & Zhang, Hao & Zhang, Xian, 2020. "Unified efficiency measurement of coal-fired power plants in China considering group heterogeneity and technological gaps," Energy Economics, Elsevier, vol. 88(C).
    17. Zhang, Ning & Zhao, Yu & Wang, Na, 2022. "Is China's energy policy effective for power plants? Evidence from the 12th Five-Year Plan energy saving targets," Energy Economics, Elsevier, vol. 112(C).
    18. Li, Ke & Lin, Boqiang, 2015. "The improvement gap in energy intensity: Analysis of China's thirty provincial regions using the improved DEA (data envelopment analysis) model," Energy, Elsevier, vol. 84(C), pages 589-599.
    19. Long, Xingle & Wu, Chao & Zhang, Jijian & Zhang, Jing, 2018. "Environmental efficiency for 192 thermal power plants in the Yangtze River Delta considering heterogeneity: A metafrontier directional slacks-based measure approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 82(P3), pages 3962-3971.
    20. Wang, Qunwei & Su, Bin & Sun, Jiasen & Zhou, Peng & Zhou, Dequn, 2015. "Measurement and decomposition of energy-saving and emissions reduction performance in Chinese cities," Applied Energy, Elsevier, vol. 151(C), pages 85-92.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:120410. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.