Looking back and forging ahead: the weighting of ESG factors
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Looking back and forging ahead: the weighting of ESG factors Alexandros Garefalakis1
· Augustinos Dimitras2
© Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract The research for the investigation of the quality of the Corporate Annual Reports (CAR) and particularly the part of the narrative information contained in it has long been underestimated, mainly due to the lack of tools that allow an objective measurement and analysis of the narrative disclosed information of each company. The concept of narrative portion is extremely difficult and multidimensional, most studies use ESG composite scores to measure the CSP. The studies which investigate this issue are facing two major problems. The first problem related with the aggregation number of Key Performance Indicators while the second problem is that all ESG factors are not equal importance. This research focuses on the detailed presentation of a new method of reliable measurement of the quality of the narrative part of the CARs, which is greatly enhanced by using two composite indices, the unweighted index Ma.Co.I and the weighted one Ma.Co.Iw. These specific indices, for the first time, offer a comprehensive and coded checklist (for the measurement of the quality of the narrative information) which follows the guidelines set by the International Accounting Standards Board in 2010. Finally, this article proposes a novel weighting scheme of narrative portion and suggest specific minimum and maximum weights per ESG factors with purpose to contribute to a better understanding of the complexity of composite scores and to improve the quality of their outputs. Keywords Management Commentary · Weighting narrative method · Ma.Co.Iw · ESG · Disclosure informations · KPIs
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Alexandros Garefalakis [email protected] Augustinos Dimitras [email protected]
1
Department of Business Administration and Tourism, Hellenic Mediterranean University, Heraklion, Greece
2
Department of Social Science, Hellenic Open University, Parodos Aristotelous St., Patras, Greece
123
Annals of Operations Research
1 Introduction In the recent decades, the Narrative Information (NI) model has been the main subject for the academics and the analysts of the Corporate Annual Reports. The necessity of publishing narrative information was observed after the scandals of various companies such as Enron, WorldCom, Tyco Cock etc. (Diamond and Verrecchia 1991; Core 2001; Verrecchia 2001; Healy and Palepu 1993, 2001; Donoher et al. 2007; IASB 2009). These scandals have disrupted the corporate landscape of the countries since 2002, making it imperative to modify the existent narrative framework of USA and to create a new European framework of narrative information in combination with the introduction of the International Accounting Reporting Standards (IFRS). The framework of narrative information the Management Discussion & Analysis (MD&A) that was created for the companies of USA, in the United Kingdom the narrative framework the Operating and Financial Review (OFR), while in
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