IMPACT OF CORPORATE SUSTAINABILITY MECHANISMS ON ESG PERFORMANCE: AN ANALYSIS OF THE BIST SUSTAINABILITY INDEX

Abstract

This study investigates impact of corporate sustainability mechanisms on the Environmental, Social, and Governance (ESG) performance of firms listed on the Borsa Istanbul (BIST) Sustainability Index. Using an unbalanced panel dataset of 260 firm-year observations from 51 unique companies between 2014 and 2023, this research examines how the establishment of a board-level sustainability committee, the adoption of the Global Reporting Initiative (GRI) standards for sustainability reports, and the external assurance of these reports influence ESG scores. Furthermore, the study explores the moderating role of multinational status in the relationship between a composite measure of these sustainability mechanisms and ESG performance. The empirical analysis is conducted using a fixed-effects panel regression model with Driscoll-Kraay standard errors to address potential issues of heteroskedasticity, autocorrelation, and cross-sectional dependence. The findings reveal that the presence of a sustainability committee, adherence to GRI standards, and obtaining external assurance for sustainability reports are all positively and significantly associated with higher ESG performance. A composite index of these mechanisms also demonstrates a significant positive impact. Notably, the results indicate that multinational status positively moderates this relationship, suggesting that the effect of robust sustainability governance structures on ESG performance is more pronounced for multinational corporations. These findings offer valuable insights for policymakers, investors, and corporate managers by highlighting the importance of institutionalized sustainability governance and reporting practices in enhancing corporate ESG outcomes, particularly within the context of an emerging market.