King Code's CSI Compliance and ESG Performance: Evidence from the JSE in South Africa

Sosola, Amanda

King Code's CSI Compliance and ESG Performance: Evidence from the JSE in South Africa

Thesis / Dissertation

2024

Publisher

University of Cape town

Department

Graduate School of Business (GSB)

Faculty

Faculty of Commerce

Abstract

This research investigates the relationship between corporate social investment (CSI) compliance under the King Code IV and Environmental, Social and Governance (ESG) performance among companies listed on the Johannesburg Stock Exchange (JSE) in South Africa. As an emerging economy with a history of socio-economic disparities, South Africa's business landscape has been transformed through governance codes such as the King Code. This study employs a comprehensive data set comprising CSI values and ESG performance scores to analyse the extent to which companies aligning with King Code guidelines demonstrate enhanced ESG outcomes. The MSCI ESG Leaders Index South Africa constituents between 2016 and 2021 are used for this analysis. The descriptive statistics highlight substantial differences between financial and non-financial companies in terms of their ESG score (ESGSCORE), average corporate Social Investment (CSI), return on assets (ROA), and firm size (FSIZE). Financial firms exhibit lower ESGSCORE variability, higher average CSI and ROA, and slightly lower FSIZE variability, indicating potential variations in ESG performance, corporate sustainability practices, and financial performance. Correlation analysis shows connections between ESGSCORE and CSI, ROA, and FSIZE. The regression findings show an inverse relationship between ESG and CSI and a negative and significant impact of profitability on ESG performance among non-financial firms, with no significant effect observed for financial firms. Additionally, FSIZE has a positive and statistically significant impact on ESGSCORE for financial and non-financial firms. This study's findings hold implications for corporate governance and sustainability practices in South Africa, shedding light on the effectiveness of the King Code IV in fostering socially responsible business behaviour. By examining the correlation between CSI compliance and ESG performance, the research contributes valuable insights to stakeholders, policymakers, and investors who seek to understand the interplay between governance frameworks and sustainable business practices in the South African context. Thus, this research aims to inform discussions on the role of regulatory frameworks in promoting corporate responsibility and driving positive environmental, social, and governance outcomes in emerging market economies like South Africa.

Keywords

Business

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