Does ESG Performance Grow over Time? Evidence from Korea

The environmental, social, and governance (ESG) index was developed to measure the sustainability of an enterprise. While academic and practical interest in the ESG index is increasing, the existing research has mainly focused on its relationship with investment decisions or financial performance. This study analyzes the initial value and growth rate of the ESG index of listed companies in the Korean stock market from 2015 to 2019 using latent growth modeling analysis. The results confirm a positive growth rate of the ESG index. Moreover, differentiated initial value and growth rate is observed for each industry. In addition, a comparison between companies representing each industry (KOSPI200) and other companies, showed that companies included in the KOSPI200 had high initial value and growth rate. This result suggests that the ESG index gap between the two groups is gradually increasing. This study places important boundary conditions on ESG research and contributes practically by suggesting the growth trajectory of the ESG index for each industry type and firm status.