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Procedia Computer Science 00 (2018) 000–000 www.elsevier.com/locate/procedia
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The 8th International Conference on Information Technology and Quantitative Management
The 8th International Conference on Information Technology and Quantitative Management
(ITQM 2020 & 2021)
(ITQM 2020 & 2021)
The Impact of ESG factors on the performance of Information
The Impact of ESGTechnology
factors on the performance of Information
Companies
Technology Companies
Alexandra A. Egorova a *, Sergei V. Grishunina, Alexander М. Karminskya
a a a
Alexandra A. Egorova *, Sergei V. Grishunin , Alexander М. Karminsky
a
National Research University Higher School of Economics, 11 Myasnitskaya Street, Moscow, Russia
a
National Research University Higher School of Economics, 11 Myasnitskaya Street, Moscow, Russia
Abstract
Abstract
The aim of the paper is to investigate the impact of ESG factors on the performance of information technology (IT) companies.
The aim of analyzes
paper the papertheis toposition
investigate
of ITthecompanies
impact of ESGin thefactors on therelative
ESG rating performance of information
to other technologythe
industries, highlights (IT) companies.
key strengths
The weaknesses
and paper analyzes the position
in their of IT companies
ESG components. in the
It is shown ESG
that rating relative
IT companies to other
are not industries,
currently highlights
the leaders in termstheofkey
ESGstrengths
rating,
and weaknesses
which leads to thein conclusion
their ESG components. It is shown
that IT companies have that IT companies
the opportunity to are not currently
develop their ESGthepractice,
leaders inif terms of ESG rating,
its development will
which leads
improve the to the conclusion
position that ITand
of the company companies
will have have the opportunity
a positive effect on to
itsdevelop their ESG
performance. practice,
On the basis ofifthe
its development will
studied literature,
improve
the authorthe position of
formulated themarket
that company andofwill
value the have a positive
company is the effect on its performance.
most suitable as an indicator Onfor
theassessing
basis of the
the studied
influenceliterature,
of ESG
the author
factors on formulated thatthe
it. In addition, market
papervalue of the company
formulates hypothesesis the
thatmost
can suitable
be used asto an
testindicator for assessing
the influence of ESGthe on influence
the marketofvalue
ESG
factors
of on it. In addition,
IT companies, developed the apaper
model formulates
to assess hypotheses that can
such an influence beprovide
and used to recommendations
test the influence of forESG
dataon the market
sample. value
The author
of IT companies,
intends to continuedeveloped
research and a model to assess
test the such hypotheses
formulated an influencewith andthe
provide recommendations
developed model. for data sample. The author
intends to continue research and test the formulated hypotheses with the developed model.
© 2021 The Authors. Published by Elsevier B.V.
© 2021 The Authors. Published by Elsevier B.V.
This is an open access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/4.0)
© 2021 The
Selection Authors.
and/or Published
peer-review by Elsevier
under B.V. of the organizers of ITQM 2020&2021
Peer-review under responsibility of responsibility
the scientific committee of the The 8th International Conference on Information Technology
Selection and/or peer-review under responsibility
and Quantitative Management (ITQM 2020 & 2021) of the organizers of ITQM 2020&2021
Keywords: ESG, Sustainable development, ESG rating, Market value, Information technology
Keywords: ESG, Sustainable development, ESG rating, Market value, Information technology
1. Introduction
1. Introduction
Sustainable development is one of the key global trends in the development of modern companies. In particular,
Sustainable
sustainable development
development is one
is one ofofthe
thethree
key global trends
priorities of in
thethe development
European of modern
Union's companies.
2020 strategy. TheInconcept
particular,
of
sustainable development
sustainable development is one of companies
requires the three priorities
to developof the
and European
implementUnion's 2020 strategy.
management methodsThe andconcept of
tools that
sustainable
allow development
them to requires companies
achieve (1) ecological, (2) social to
anddevelop and implement
(3) governance management
development goals, formethods
which theand tools that
abbreviation
allowisthem
ESG to achieve
accepted. (1)companies
Thus, ecological,begin
(2) social andESG
to face (3) governance development
risks that are potentiallygoals, for to
barriers which the abbreviation
the company's entry
ESGaissustainable
into accepted. development
Thus, companiespath.begin to face ESG risks that are potentially barriers to the company's entry
intoThe
a sustainable development
ESG concept path. financial markets and investment activity. Green or socially responsible
has also impacted
The ESGhas
investment concept hasone
become alsoofimpacted
the trendsfinancial
of the markets
modern and investment
economy. activity.
Investors haveGreen
become or socially responsible
more interested in
investment that
companies has operate
becomewith
one the
of the trends of the ESG
principles moderndueeconomy.
to the factInvestors have become
that companies morewith
that comply interested
the ECGin
companies that operate with the principles of the ESG due to the fact that companies that comply with the ECG
* Corresponding author. Tel.: +7-909-9140391; fax: +0-000-000-0000 .
E-mail address: [email protected].
* Corresponding author. Tel.: +7-909-9140391; fax: +0-000-000-0000 .
E-mail address: [email protected].
1877-0509 © 2021 The Authors. Published by Elsevier B.V.
This is an open access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/4.0)
Peer-review under responsibility of the scientific committee of the The 8th International Conference on Information Technology and
Quantitative Management (ITQM 2020 & 2021)
10.1016/j.procs.2022.01.041
340 Alexandra A. Egorova et al. / Procedia Computer Science 199 (2022) 339–345
Egorova Alexandra / Procedia Computer Science 00 (2017) 000–000
principles are much more (1) sustainable, (2) have more resources for development in the long term, (3) spend
time optimizing their activities. Also, some scientists confirm that companies with a high ESG rating (4) have
better financial performance.
The relevance of the sustainable development is in the attention of literature and public, but simultaneously
there are very few papers dedicated to the study of the development and impact of ESG on a specific industry.
Speaking of the importance of ESG risk management, the focus is primarily on companies from the industrial
and mining industries. It is so, because the trend of sustainable development began with the introduction of
approaches to environmental risk management in these sectors. However, in the modern economy, not only the
trend of green companies is gaining relevance, but also a trend of companies with good corporate governance
and social responsibility. Thus, public companies in other sectors that are less exposed to environmental impacts
have also begun to pay more attention to ESG factors. Companies in the information technology (IT) sector are
examples of companies that are on track to implement ESG principles. The IT sector is one of the laggards in the
implementation of ESG practices, but this gap gives IT companies the opportunity to increase their market value
and attract investment by improving ESG components and fixing gaps in the field of sustainability.
The purpose of this work is to study how management in accordance with ESG principles can affect IT
companies market value. The research objectives are:
1) Study the literature describing how ESG rating can influence market value of the company.
2) Study the position of the IT sector in the ESG rating in comparison with other sectors and identify the
main difficulties and opportunities in the field of ESG.
3) Formulate hypotheses for analyzing the influence of ESG rating om IT company market value and
propose a model for analyzing this correlation.
2. Literature review
A lot of literature is devoted to the empirical point of view of the influence of ESG factors. A commitment to
ESG or sustainable development is tangible and has a financial impact. A study by Bank of America [1] showed
that between January 2007 and August 2019 alone, the capitalization-to-earnings ratio of US and Western
European companies that follow the principles of sustainable development improved by 20% compared to others.
At the same time, the importance of traditionally used factors, such as the availability of tangible assets, financial
result and the company's share in the market, for assessing the value of companies is gradually decreasing and
the importance of intangible assets, such as brand value (reputation) and intellectual property, is increasing,
whose share in the assessment of the value of companies included in the S&P 500 index increased from 30% in
1998 to 68% in 2018 [2].
The increased demand for firms with good ESG scores has led to significant changes in the financial industries.
Over the past several decades, investing in socially responsible companies has become a major trend in the mutual
fund industry and one of the key topics in financial research around the world. SRI - socially responsible investing
in a broad sense is defined as an investment process that includes the recognition of companies with high
corporate social responsibility (CSR), while this indicator is assessed on the basis of indicators of environmental,
social and corporate governance, i.e. ESG [3]. According to a 2018 US SIF report [4] socially responsible
investing in the US alone reached $ 12 trillion, 38% higher than in 2016 and totaled $ 8.7 trillion at the time. This
is a quarter of the $ 47 in total assets under US professional management.
With the modern literature, many works confirm the need for ESG risk management, proving that companies
with low ESG risks become more attractive to investors [5], improve financial performance and competitiveness
[6]. It was proved that the trend towards socially responsible investment affects the predictability of stock returns.
In addition, the relationship between the degree of disclosure of information about the company's sustainable
development on the company's value in the market was revealed [7]. Investors are channeling more funds to
funds with better ESG ratings [8]. Several studies highlight the impact of ESG factors on company value [9].
Alexandra A. Egorova et al. / Procedia Computer Science 199 (2022) 339–345 341
Egorova Alexandra / Procedia Computer Science 00 (2017) 000–000
It is impossible not to note the positive relationship between ESG and financial indicators, which are
increasingly showing us empirical results in their works by researchers [10]. Authors [11] have shown that return
on assets has a positive effect on the performance of ESGs. It has shown positive results in terms of reputation
scores for Australian firms and financial metrics such as ROA and ROE [12]. Another example of works [13]
identified a positive relationship of Tobin-q with all three components of pure ESG. Thus, higher net ESG scores
indicate an increase in company value. As a result, we came to the conclusion that we found a positive relationship
between eco-efficiency indicators with production (operational) indicators and market value.
But not all studies have shown a positive impact, among them there is a negative impact [14,15]. So, for
example, an insignificant relationship between the effectiveness of ESG and market value, was identified in the
works of the authors [16]. Also in the work [17] recorded the negative impact of ESG on financial performance.
As it turned out, the researchers noticed a negative market reaction to the news about the accession or, in other
words, the assignment of a particular company to ESG Rating. Unambiguously, most studies confirm that there
is a dominant positive relationship between ESG performance and financial performance, rather than a negative
relationship.
In the scientific literature and among practitioners, a clear feeling is created that sustainable development is
not only advisable to achieve the goals of the state, society and individual companies, but is also necessary for
the harmonious development of man and nature. However, there are not many works devoted to studying the
impact of ESG risks in specific industries. This study contributes to the literature on the impact of ESG practices
on company performance, as well as to the literature on IT sector research.
3. ESG in IT sector
IT companies do not have a high ESG rating in comparison to other sectors. This is primarily due to the
specifics of the company's activities (Fig. 1). The primary focus on environmental issues is in the manufacturing
sector, which is why companies in this sector began to pay attention to sustainable development and implement
ESG practices earlier than others.
60 53 50 47 46 44 43
50 42 42 41 40 39
40
30
20
10
0
Fig. 1. ESG cross-industry rating. Source: S&P ESG rating
The results of the analysis of the components of the ESG rating shows (Fig.2) that IT companies have one of
the lowest scores in E-component and S-component.
342 Alexandra A. Egorova et al. / Procedia Computer Science 199 (2022) 339–345
Egorova Alexandra / Procedia Computer Science 00 (2017) 000–000
100%
90%
80% 54 52 47 47 49 46 45 43 42 41 38
70%
60%
50% 48 45 42 41 37 37 35 35 34 36
40
40%
30%
20% 56 55 53 52 43 48 49 48 45 46 50
10%
0%
E S G
Fig. 2. ESG component cross-industry rating. Source: S&P ESG rating
Key risks that could affect the company's position in the ESG ranking by components, as well as possible key
development decisions in the field of sustainability are presented at the Table 1.
Table 1. IT companies ESG components risks and opportunities
ESG component Risks and opportunities
Ecological The technology sector is exposed to direct and indirect environmental risks associated with manufacturing
component operations, manufactured products and the use of the physical infrastructure of the Internet. Their environmental
impact is primarily related to their indirect operations, as the vast majority of their manufacturing operations are
outsourced to suppliers. Working with supply chains, when properly managed, makes it possible to operate more
efficiently and environmentally. This can, over time, reduce the impact of environmental risks on equipment and
semiconductor companies
Social component The main social risks are associated with supply chain management, information privacy and security, and people
and diversity. Many tech companies collect, manage, and monetize sensitive information that can be misused.
Any theft of corporate or individual information can damage a company's reputation and profit prospects, as well
as increase the risk of oversight and regulatory restrictions. Given the environmental and social risks and tighter
regulatory and industry focus, it is imperative for equipment and semiconductor companies to effectively manage
their complex global supply chains to promote environmental and social best practices.
Governance At the industry level, some tech companies have a two-tier ownership structure that favors founders with
component supervoting and antitrust disputes. Litigation, especially antitrust disputes, are common in IP-focused segments
of the tech sector such as software applications, hardware devices, and semiconductor designs. Legal violations
can disrupt and jeopardize the long-term survival of an organization, which is why they are an important factor
in our credit rating assessment.
IT sector is not a leader in terms of development in the field of ESG, however, this fact can provide benefits
for IT companies. With the right use of resources and the implementation of the ESG concept, IT companies can
increase their position in the ESG ranking and thereby attract more investments, increase market value and
financial performance. This paper investigates the relationship between the ESG rating and the market value of
IT companies. The result will make it possible to understand whether IT companies need to continue developing
in the field of ESG or this trend does not have a clear positive impact on IT sector.
Alexandra A. Egorova et al. / Procedia Computer Science 199 (2022) 339–345 343
Egorova Alexandra / Procedia Computer Science 00 (2017) 000–000
4. Methodology and Model Development
4.1. Research hypotheses
It is assumed that companies with higher ESG ratings are much more attractive for investment than
competitors with lower ratings. So, we propose to analyze the impact of ESG rating on market value with the
following hypotheses:
H1. There is a positive relationship between the market value of a company and the ESG rating of companies
in the IT sector.
H2. There is a positive relationship between the market value of a company and the E-score in the ESG rating
of companies in the IT sector.
H3. There is a positive relationship between the market value of a company and the S-score in the ESG IT
sector rating.
H4. There is a positive relationship between the market value of a company and the ESG G-score in the IT
sector.
4.2. The Model
From literature review it was found that Tobin’s Q is suitable metric for assessment the market value of
company. Olson [18] describes a model for valuing public companies in which the market value of capital is
determined based on the company's financial information plus other non-financial information. So, we ill use
ESG data as non-financial information, because Olson did not specify additional non-financial information could
be used in the model. This model is used in research using information on environmental, social and government
factors [19, 20,21].
To test hypothesis H1, the following model was developed:
𝑌𝑌𝑡𝑡 = 𝛽𝛽0 + 𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅 + 𝛽𝛽2 𝐸𝐸𝐸𝐸𝐸𝐸scrore
Yt - Tobin’s Q, computed as Market value/Book value;
ROA - Return On Assets (Net Profit/Total Assets);
ESGscore – the ESG rating, measured by Thomson Reuters Eikon
To test hypotheses H2-H4, the following model has been developed:
𝑌𝑌𝑡𝑡 = 𝛽𝛽0 + 𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅 + 𝛽𝛽2 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 + 𝛽𝛽3 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 + 𝛽𝛽4 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺
Yt - Tobin’s Q, computed as Market value/Book value;
ROA - Return On Assets (Net Profit/Total Assets);
Escore – the ecological score from ESG rating, measured by Thomson Reuters Eikon
Sscore – the social score from ESG rating, measured by Thomson Reuters Eikon
Gscore – the governance score from ESG rating, measured by Thomson Reuters Eikon
4.3. The Data
Database of IT sector companies can be downloaded by using Bloomberg terminal and Thomson Reuters
Eikon. Those companies that have ESG rating data (Thomson Reuters Eikon) should be left. The time horizon
of the data should be at least 10 years.
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Egorova Alexandra / Procedia Computer Science 00 (2017) 000–000
5. Results and Discussion
The purpose of this work was to analyze the possible impact of ESG factors on the of IT companies. The paper
considered how the ESG rating can affect the financial performance of the IT company and its investment
attractiveness. Most studies have been shown to prove that companies with higher ESG ratings have better
operating performance, financial results and are more attractive to investors. Most of the works showed that
companies developing and implementing ESG components are increasing their position in the market and the
value of such companies is increasing. Thus, in order to assess the influence of the ESG factors, the author
proposed to evaluate the impact of the ESG components on the company's market value.
In addition, the work analyzed the position of IT companies in the ESG rating in comparison with other
industries. It has been shown that IT companies are not leaders in this area and ranked lower than most other
industries. In addition, an analysis of each of the components of the ESG rating for IT companies in comparison
with other industries was carried out. It has been shown that IT companies have weak E-component and S-
component. The G-component is average in relation to other industries. Further, the paper considered the key
risks and opportunities associated with the current ESG component rating for IT companies. The author believes
that the current position in the ESG rating can become a promising direction for development for IT companies,
if it is proved that with an increase in the ESG rating, IT companies can really increase their value in the market.
To analyze the relationship between the ESG rating and the market value of IT companies, the author
formulated hypotheses about the relationship between the ESG rating and the market value of the company, as
well as the relationship between the components of the ESG rating and the market value of companies. Also, the
author has developed a valuation model that can be tested to assess the relationship between the company's value
and the ECG rating, as well as between each of their components of the ECG rating. In addition, the author
suggested sources of information about the data, that can be used to approbate developed model and teste
hypothesis.
The next step of the research includes testing the model developed by the author on real data and testing the
formulated research hypotheses.
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