Making the ESG revolution a reality

Cristina Iturrioz-Landart

Iñigo Calvo-Sotomayor

Deusto Business School

Co-Editors-in-Chief of the Bulletin of Economic Studies

doi: https://doi.org/10.18543/bee.2640

Published online: March 2023

It is with renewed enthusiasm that we present this new special issue of the Bulletin of Economic Studies. As our readers are aware, when the new editorial phase began in 2021, the Bulletin started to focus on the transfer of expert knowledge to business management practice on topics that would be of interest to companies. For this reason, after a first issue dedicated to discussing how to approach the application of social value strategies in organisations, we are taking a step forward in the current issue. Here we face the challenge of the ESG (environmental, social and governance) revolution, in order to share and transfer knowledge on how to make this a reality in organisations.

From the perspective of stakeholder theory, an objective of organisations has been the connection between businesses and the environment, and between businesses and the agents and communities around them. However, something has changed with the recent development of ESG values. This trend has taken on a new, global and cross-cutting dimension, with important implications for companies’ leadership and strategic and operational management.

As investors focus more on sustainability and human rights, there is a need to measure companies’ performance in non-financial terms. Along these lines, it is necessary to include ESG criteria and metrics in daily business practices. The need for disclosing environmental, social and governance metrics (which aim to align investment flows with more inclusive and sustainable development) is an urgent challenge for companies. Going further into ‘how’ to do this, and its related impacts is the main ambition of this special issue.

Specifically, the issue brings together different contributions to the subject from a wide range of approaches, including the influence of activism on economic and financial reporting; democracy in corporate governance; the connection between governance and ethics in the banking sector; auditing and its connection to sustainability; and investment in different fields, such as renewable energies and the socially responsible approach (or ESG). In this special issue we have had some Guest Editors: Laura Baselga, Associate Professor at Deusto Business School (University of Deusto); Guillermo Badia, Associate Professor at Deusto Business School (University of Deusto) and Luis Vicente, Associate Professor at the University of Zaragoza. Their stimulating foreword introduces the importance of ESG and its development in the recent literature.

The different articles in this issue address the subject from different perspective. Beatriz García Osma and Cristina Grande-Herrera are the co-authors of the paper entitled ‘Novel mechanisms of corporate governance? Activism and the influence of stakeholders over financial information’. The authors examine the role of activism as a new mechanism for the corporate governance of companies. They present the growing influence of third-party stakeholders and institutional investors on the economic and financial reporting prepared by companies, and their—still limited—power in Europe. They also discuss the implications for both practitioners and regulators.

The article ‘Strategies for building profitable portfolios in renewable energy companies’, written by José Luis and María del Mar Miralles Quirós, analyses the renewable energy sector. It provides an interesting approach that can be easily applied by investors and leads to high cumulative returns. The authors note that this type of research can encourage brokers and investors to choose renewable energy companies for their portfolios. A movement that contributes to a dual objective: improving the environment at the same time as achieving returns for investors.

Thirdly, Estibaliz Goicoechea, Fernando Gómez-Bezares and Leire Alcañiz González present the article entitled ‘How do auditors express their opinion on sustainability information? A novel proposal for a verification report in Europe’, in which they highlight the growing international interest in sustainability reporting by organisations. The text provides a comparative outline of different directives and, most importantly, describes the new Corporate Sustainability Reporting Directive, which aims to improve the comparability, relevance and credibility of non-financial information reported in the European environment. The authors conclude by proposing a novel audit report for non-financial information that aims to help improve communication between auditors and users, as well as to enhance stakeholder confidence in the sustainability information reported.

The special issue addresses the topic of socially responsible investment. The article by Beatrice Carole Boumda Djampou, entitled ‘Socially responsible investment: economic and psychological aspects of mutual fund management’, highlights the growing interest of individual investors in sustainable and responsible investment (SRI) funds. This interest is based not only on performance criteria, but also on the expectation that such funds meet environmental, social and corporate governance (ESG) criteria. The article analyses the existence of different behaviours of SRI fund managers, identifying differences between performance (among other aspects) and conventional funds. It concludes by providing a number of lessons for investors and financial decision-makers.

The paper entitled ‘Does the inclusion of ESG criteria in stock selection improve the performance of portfolios in the European market?’ by Estibaliz Aldekoa Urieta, Gonzalo Bonilla Astigarraga, María Eizaguirre Berasategui, Andrea Urrutxua Azua and Lidia Lobán Acero analyses the performance of the investor portfolios that incorporate ESG criteria into their investment criteria. Specifically, using a European corporate dataset for the period from January 2008 to December 2021, they conclude that the fact that investors incorporate ESG criteria when selecting the companies included in their portfolios has a neutral effect on the performance of their portfolios.

Finally, Laura Baselga and Antonio Trujillo look at how there is evidence of a positive relationship between good corporate governance and the economic and ethical performance of financial institutions. In their article ‘Corporate Governance, Diversity, and Ethics in the Banking Sector’, they discuss the relationship between better oversight of corporate governance in the banking sector and its economic and ethical reputational effects. An important reflection, given that the financial sector has been questioned since the 2008 crisis.

This special issue also includes three guest articles that address the challenge that organisations face in integrating ESG criteria and metrics into daily business practices. In particular, the guest article entitled ‘ESG management is either digital or it simply does not exist’, co-authored by Luis Martín and Noelia Sánchez Ortiz, presents an in-depth reflection on the interconnected world in which we live, where only digital technology can provide a solution to the necessary connectivity between stakeholders. The article discusses both the contexts of ESG requirements and their related indices and metrics, providing digital tools that enable them to be integrated and shared. In conclusion, the authors propose a framework for mapping the status of companies’ digitalisation including relevant corporate examples of the impact that digitalisation has had on ESG.

The guest article ‘Integration of ESG criteria in business management models and processes’, by Charles Kirby, raises the need for sustainability concepts to be embedded in each and every business process. The author presents a threefold reflection on governance models, operational models and risk management, highlighting the role of digital transformation and the development of collaborative and innovation ecosystems along value chains as key levers for the adoption of a proactive approach to the implementation of ESG criteria in organisations.

Finally, María Osaba-Esteban offers a thought-provoking reflection on supply chains. Her article ‘Antifragile supply chains: a new paradigm in inventory management’ proposes to apply the concept of ‘antifragility’—coined by Nassim Taleb— to the management of supply chain risk. The text dives into this novel area and its management implications, by arguing that companies should take advantage of ‘antifragility’ in unsettled environments. An analysis that is undoubtedly highly topical and necessary, given that supply chains have become an essential link in our economic and production model in recent times.

We hope that the texts, reflections and ideas that make up this special issue will be of interest to the Deusto Business Alumni community as a whole, as well as to many other readers, institutions and organisations interested in putting into practice values which, from the point of view of the Editors and authors of this issue, reinforce companies’ capacity for value creation and long-term sustainability.