Do Companies in Different Industries Respond Differently to Stakeholders’ Pressures When Prioritising Environmental, Social and Governance Sustainability Performance?

Abstract

Good sustainability decisions depend on how companies respond to wide-ranging exposure to exogenous and endogenous pressures. The purpose of the article was to determine whether companies in different industries respond differently to stakeholders’ pressures when prioritising Environmental, Social and Governance sustainability performance (ESG-SP) activities. Data of six sectors, with a total of 75 companies was extracted from the CSRHub database, which is a rating agency that focuses on assessing ESG performance of companies. The ANOVA, pairwise comparative and multiple comparison Tukey HSD tests were applied to compare mean scores across the sectors. Overall industry scores show no evidence of ESG-SP differences across industries in the sectors examined. It was however revealed that three (3) out of twelve ESG ratings have significant differences namely: Community Development and Philanthropy; Human Rights and Supply Chain; as well as Compensation and Benefits. The study found that the type of industry does not have a significant role in determining the ESG rating of a company. Future studies can look at a longitudinal analysis to shed light on the pattern of sustainability practices across companies that are listed on the JSE.

1. Introduction

Despite ongoing academic debates on the determinants of Environmental, Social and Governance Sustainability Performance (ESG-SP), it remains uncertain whether the industry to which a company belongs is a significant factor that influences decisions about companies’ ESG activities. When companies align their ESG-SP decisions to legitimate stakeholder’s interests, they simultaneously maximise shared value which is fundamental to their existence.

The Brundtland commission defined sustainable development as the “human ability to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs” [1]. Sustainable development is both a moral and ethical matter which goes beyond drivers of economic, environmental and social aspects [2]. It may, therefore, be reasonable to expect that companies as global citizens should contribute towards sustainable development in response to societal bounds, norms and stakeholder expectations. As a result, companies need to embed sustainability into their business operations to show their commitment to the sustainable development agenda [3].

Sustainability therefore not only contributes to the achievements of the sustainable Development goals (SDGs) but also provides steady financial benefits [4]. Essentially companies that are morally prioritising sustainability initiatives and stakeholders’ claims do so on the basis of moral and economic groundings that inform business decisions regarding who should benefit from sustainability-related actions [5].

The article is structured as follows: In Section 2 the article focuses on a literature review of the environmental, social and governance (ESG) concept; sustainability reporting (SR) and its evil twin; ESG and different industries; the theoretical lens of the study; the case for regulatory mechanisms and the context of the study, namely the Johannesburg Stock Exchange (JSE) listing requirements. Section 3 deals with the hypothesis development, followed by the methodology in Section 4. The research results are presented in Section 5 and lastly conclusions and recommendations are presented in Section 5 and Section 6, respectively.

2. Literature Review

There is a growing call for companies’ sustainability reports to reflect sector-specific ESG indicators [6,7,8,9,10]. A sustainability report is a report published by companies to report the impact of their daily operational activities in economic, social, and environmental terms, also highlighting the link between companies’ values, strategies, and governance models with their commitment towards sustainable development [11]. SR in this regard refers to companies’ communication of its ESG practices to its stakeholders in line with its commitment toward sustainable development. In the same vein, SP in this study is defined as companies’ observable outcomes and tangible progress with respect to ESG activities aimed towards the achievement of the SDGs while improving the quality of life of employees, local communities and society at large with due care for the environment [12].

2.1. The Environmental, Social and Governance Concept

The environmental, social and governance (ESG) concept is an amalgamation of three distinct disciplines which may overlap with issues in one discipline typically impacting on or being impacted by elements of the other two [13]. ESG has become a must-have goal for sustainability [14]. The increasing demand for sustainability has pressured companies to disclose sustainability information about their ESG activities. Companies have optimally integrated sustainable development into their business model, and this is viewed as being more ethical and conscious. Such companies are likely to relate better with environmentally engaged citizens and loyal customers who are also concerned about the environment, health and well-being of their communities [15].

On the one hand, ESG is being recognised as financially material, especially for highly diversified investors [16]. Consequently, companies are disclosing material ESG information, even though the specific information that is material may vary across companies and industries [16]. To this end, ESG has been instrumental in successfully incorporating sustainability into the financial mainstream as listed companies are increasingly ESG-rated [17,18]. Investors are factoring ESG screening into decision-making processes and they are bringing their sustainability lens to their investment analysis [18].

There is emerging evidence that ESG contributes to the long-term financial performance of a company [19,20,21]. This means that if a company wants to focus on long-term profits, practicing pro-ESG actions would reduce risks and increase future profitability. While a good balance between sustainability performance (SP) and SR is important, companies that improve both their ESG performance and disclosure stand to increase financial performance, though ESG performance is more critical in future profitability (the long-term) while ESG disclosure is more important for profits (short-term) [20]. Companies that report high ESG performance are likely to experience more resilience during both normal and turbulent times [21].

2.2. The Role of Sustainability Reporting and Consequent Greenwashing

The demand for sustainability reporting (SR) reform has risen significantly and is mainly being driven by a growing consensus between mainstream investors who are beginning to connect sustainability to financial performance. While some companies may have adopted the motto ‘do good and talk about it’, sceptics have criticised this stance pointing to reporting-performance portrayal gaps [22]. In some instances, sustainability reports have been dubbed “fairy tales” as companies fail to ‘walk their talk’ [22]. Moreover, some companies have been accused of greenwashing tendencies and as a result they are under increasing pressure to ‘do good’ beyond regulatory obligations and for more than financial benefits [4]. Unfortunately, SR of which ESG is a subset has been seen as a tool to facilitate greenwashing. ESG is also used strategically to maintain, defend or repair societal legitimacy [23]. However, companies are striving to prioritise stakeholder demands regarding material aspects of ESG as a form of accountability to maintain a societal license to operate [22].

According to [24], the impact of ESG disclosure on profitability, performance, and value cannot be ignored. Reference [24] immediately cautions that perceived/potential greenwashing behaviour decreases perceived value. In fact, [24] further states that greenwashing scandals have had serious consequences for companies ranging from the loss of trust and loyalty from consumers, shareholders, socially conscious investors, consumers’ attitudes towards the company leading to revolt against the company.

Nevertheless, in their attempt to address pressure from stakeholders, some unethical managers may tend to resort to using SR as a legitimacy tool to justify a company’s continued existence in society by greenwashing. Greenwashing is a phenomenon that emerged as sustainability’s ‘evil twin’ [25]. The increasing prevalence of the greenwashing phenomenon casts doubt and scepticism on bona fide sustainability policies thereby undermining the very essence of sustainable development [25].

2.3. ESG and Different Industries

References [26,27,28] argue that industries/sectors should be responsive to pressures from the local society concerning their license to operate [29]. Therefore, ESG ratings of industries within the context of a highly regulated setting at the Johannesburg Stock Exchange (JSE) are compared to examine if companies respond to sector-specific sustainability aspects of ESG [30]. Companies on the JSE may have demonstrated how they have managed to imbed ESG into their operations by aligning their business models with sustainable development.

However, some industries face more public scrutiny than others because of more stakeholder pressures and demand for more transparency and compliance [6]. In fact, “companies from different industries have different priorities for different stakeholders” [31] (p.5). This article contributes to the body of knowledge by assessing a renewed analysis of ESG data to determine if companies in different industries respond differently to prioritising ESG-SP activities.

References [32,33] pointed out that progressive companies adopt a multi-fiduciary posture by incorporating what stakeholders indicated as a priority in their ESG report to account for diverse stakeholders’ needs and interest [34,35]. Companies in dirty industries such as mining and energy are likely to improve sustainability benchmarks and create a win-win model for business and society by addressing environmental and social concerns in ways that increase profitability [36].

Industry characteristics determine the weights that companies apportion to ESG and this is attributable to the relative importance of ESG factors which vary by sector due to the specificities of the industries [14]. Reference [14] posits that while governance issues are generally sector-neutral, social and environment factors are highly sector-relevant. Furthermore, [14] indicates that ESG weights are varied not only by the industry but also by countries with different environmental, economic, geographic, and political characteristics. According to [14], current ESG factors do not necessarily take into account country-specific and/or industry-specific management environments [14]. It is therefore worthwhile to study the ESG criteria based on industrial differences. According to [14], materiality is different for each country, industry, and company but companies that focus on industry-specific materiality issues have been shown to perform better. While there are sector- and county-specific contextual determinants of ESG they are also largely dependent on national context or history, culture and tradition, as well as factors such as governance gaps, political reform, and socioeconomic priorities [37]. Moreover, [37] indicates that powerful external drivers such as regional and global governance must be taken into consideration. Reference [37] found that while individualised sector-specific prioritised ESG indicators showed that the environmental domain was common; corporate governance appeared the primary focus while the social domain which perhaps reflect the effect of country- and sector-specific needs, was the most variable in Saudi Arabia private-health sector.

Therefore, the content and focus for ESG disclosures are different from one sector to another [38]. According to [38], ESG reports need to cater to stakeholders’ needs based on solid materiality matrices relevant for the company and industry in which it operates. Reference [38] alludes that significant differences with respect to companies’ ESG disclosure are due to different social contexts, country classifications and their stakeholders whereby companies in riskier sectors may use ESG disclosure as a way to show responsibility [37]. This is in line with [39]’s assertions that ESG priorities vary by sector in a sense that capital-intensive industries such as coal, oil, natural gas, and chemical are more exposed to environmental problems than labour-intensive industries such as retailing which are more inclined to social problems associated with human rights issues and compliance with international labour standards [39].

Reference [7] indicated that ESG reporting is strongly correlated to the sector in which a company operates. This means that a set of common rules for companies that operate in different sectors may be required as companies are impacted differently by external sectorial events as well as negative effects connected to the sector [40].

Since the materiality of specific ESG factors varies by industry sector, the sector-specific nature of ESG materiality warrants for supplementary ESG disclosures with sector-specific information [41]. In the same vein, core mandatory disclosures should be supplemented with more flexible, principles-based approaches [41].According to [41] ESG screening criteria have increased remarkably over time and ESG investing is now associated with a reduction of stakeholder risk. As a consequence, high ESG ranked funds have less overlap with all other funds than low ESG ranked funds. Reference [41] found evidence that the relative market value loss of the High ESG ranked funds is lower than the loss experienced by the Low ESG ranked counterparts in the time span with lower volatility [41].

On the other hand, [40] examined the role of ESG performance during the market-wide financial crisis, triggered in response to the COVID-19 global pandemic. A combination of core indicators common to all companies, and sector-specific indicators were used to form ESG scores. The study found that among the three dimensions of ESG, governance (G) is the most important, whereas the importance of environmental (E) and social (S) risks vary by sector. Furthermore, high-ESG portfolios remain consistently higher than that of the low ESG group and that high-ESG portfolios generally outperform low-ESG portfolios [40]. Reference [42] supports the notion that ESG scores need to be tailored to reflect data that is relevant to its industry sector.

Reference [43] performed a sector analysis of the 12 sectors represented on the US Dow 30 Index according to their entropy contribution in each of the ESG pillars, relative to each other. The relative performance of each sector to the average sector performance was analysed to determine which sectors communicate ESG well, and which sectors distort the information content of the corresponding ESG measure. The study found that the healthcare, defence, and automotive sectors are conveying unclear messaging within the environmental and social pillar, while the financial, consumer goods, and industrial sectors convey messages very efficiently in these pillars [43]. Another key finding was that sectors with clear, lean, and flexible governance structures, such as automotive, IT, and travel, are most effective in messaging [43].

Referene [31] analysed ESG indicators of 52 companies in the logistics sector worldwide. The results show that the sector does not agree on the materiality of sustainability indicators. Contrary to prior research that found the tendency of companies in the same industry showing compatible patterns in SR, and differences in materiality of sustainability indicators across industries, Reference [31] found that more than 70% of the indicators, do not exhibit compatible patterns of what logistics companies value as material sustainability indicators. According to [31] developing sector-specific guidelines on sustainability indicators could enhance clarity and stimulate compatible reporting patterns with regard to material sustainability indicators.

Reference [14] developed an ESG framework specific to South Korea which is regarded as an emerging country by international rating agencies where ESG is also considered as well-managed. The study therefore factored amongst others; country-specificities such as the level of ESG investment whereby the results show that institutional investors place more importance on environmental and governance factors compared to social factors. According to [14] ESG weightings should be varied not only by the industry and rating providers but also by countries with different environmental, economic, geographic, and political characteristics [14].

It is clear that industry effects in ESG reporting requires an industry-sensitive approach to sustainability and that further standardisation may be necessary to level the playing field whilst at the same time considering the sectorial nature of companies’ operations [44]. Although cross-industry studies may produce results that are generalizable to associated industries, sector-specific studies allow inferences relevant for advancing sector-specific matters [45]. As such, companies in a specific industry may have greater justification for ESG practices than others and therefore are keener to report the outcomes thereof. Reference [6] emphasises the importance of sector-customised metrics because such metrics allow companies to track and measure progress. Sector-specific ESG disclosure requirements may be used to supplement standard disclosure items [45].

2.4. The Theoretical Lens

Theories that can be used as lenses for SP include corporate social responsibility (CSR), and the stakeholder, legitimacy, organisational and agency theories. This study draws upon the stakeholder theory to conceptualise this research because of its applicability and richness [46]. Although stakeholder theory has been widely critiqued, it remains fundamental to understand business and societal relationships and is the most commonly used theoretical framework to evaluate CSR [47]. Stakeholder theory has been used previously to analyse SP because of shared ideologies with sustainability [48,49,50,51,52,53,54,55,56]. The influence of stakeholder theory in managing sustainability issues has been widely researched in the literature [57,58,59,60,61,62]. The ethics of stakeholder theory as an arbitrator cannot be ignored any further if business is to maintain its social license to operate (SLO). There is empirical evidence that illustrate that SP facilitates stakeholder engagements, thereby promoting more positive dialogue with stakeholders [63].

2.5. A Case for Regulatory Mechanisms

Empirical studies show that the drive by companies to portray high SP to their stakeholders and regulatory authorities may facilitate greenwashing through manipulation of organisational sustainability data, defiance or avoidance responses to disguise externalities and poor SP [64,65,66,67,68,69,70]. The greenwashing concept is an umbrella term used to characterise superficial and misleading sustainability information [71]. However, there are scholars who consider greenwashing for only environmental issues, distinguishing it from the term ‘blue-washing’ which normally stands for social or human rights issues, or ‘pinkwashing’ for health issues for example breast cancer). Other researchers consider greenwashing a social and environmental phenomenon [72].

Greenwashing here is an expansive term which refers to activities by companies aimed to conceal negative externalities and questionable corporate practices through unsubstantiated self-laudatory claims which are misleading [73]. Stakeholders can be deceived by sweeping sustainability claims which may not be easy to discern whether a company is making untruthful claims or not [74]. This points to the growing pressure on policymakers to fill the regulatory vacuum through mandatory disclosures and performance [75,76]. Regrettably, the vacuum created a breeding ground for greenwashing which is also perpetuated by a lack of consensus on the measurement of SP. Reference [77] attributes this vacuum to the ineffectiveness of mandatory performance and lack of universal standards and frameworks.

Reference [78] found that both concealment and attribution are strategies adopted by manipulative companies to sway the impressions of stakeholders by overstating good news to gain legitimacy. Reference [78] further explained that concealment may involve obscuring or masking negative externalities and outcomes using corporate rhetoric to persuade stakeholders in a company’s favour, therefore deliberately confusing them with information asymmetry.

2.6. The Johannesburg Stock Exchange (JSE) Listing Requirements

The JSE is the first stock exchange worldwide to introduce a sustainability index measuring companies on sustainability indicators related to ESG practices. The South African experience demonstrates that integrated reporting is not just an academic exercise [79]. This makes South Africa the most suitable setting for ESG research [80]. It can be argued that the concept of sustainability and sustainable development finds more resonance in the South African context and that the FTSE/RI Index companies are indeed championing sustainable business practices.

Moreover, stakeholders are incorporating ESG considerations into their benchmarks and investment decisions. The increasing demand for ESG information has been notable as investors want to implement ESG investment strategies, and therefore, the JSE utilises FTSE Russell’s ESG Ratings and data model tools. The data model is customised to cater for companies’ needs with clear definitions and rules for assessing ESG practices.

The model determines the overall rating which is broken down into three (3) underlying pillars namely: environmental, social and governance. Over 300 indicators are individually researched to cater for ESG aspects focusing on key operational issues.

The FTSE Russell’s ESG Ratings and data model is made up of 14 themes viz: biodiversity; climate change; pollution and resources; water security; supply chain: environmental; customer responsibility; health and safety; human rights and community; labour standards; supply chain: social; anti-corruption; corporate governance; risk management; and tax transparency [81]. The themes are aligned with the UN Sustainable Development Goals (SDGs) and each theme contains about 10 to 35 indicators. An average of 125 indicators are applied per company taking account each company’s unique circumstances and operational issues. The indicators are used to produce a theme score [81].

Based on the theme indicators, the model allocates a theme score and a theme exposure for each of the 14 themes, following which a cumulative pillar score and cumulative pillar exposure is allocated for each of the three ESGs. Thereafter, a cumulative calculation of the total ESG performance is allocated to produce a company’s ESG rating.

The FTSE/JSE RI Index has been designed to identify South African companies with leading ESG practices. To meet eligibility for FTSE/JSE RI Indices, companies should score a minimum inclusion criteria of a 2.5 overall ESG Rating [81]. Constituents of the FTSE/JSE RII with an ESG Rating below 2.4 are at risk of removal from the index.

Furthermore, companies listed on the JSE should adhere to King IV™ Governance Code which became mandatory in 2017 [82]. The JSE amended its listing requirements in May 2017 after the Institute of Directors in Southern Africa (IoDSA) released the final version of King IV™. Under the amendments, listed companies do not have the choice that non-listed companies have—the choice to apply only some of the King Code principles and explain the ones they have not applied. Listed companies must apply all the latest King Code principles.

3. Hypothesis Development and Testing

The industry in which companies operate is also an important driver to influence decisions about which ESG activities to undertake [83]. SR was found to be strongly correlated to the type of sector [7]. This is due to the different levels of exposure to pressures from society, stakeholder groups, existing and prospective regulations [9]. Industry affiliation determines SP of companies [84] and plays a significant effect especially with reference to the environmental dimension [84,85,86]. Environmentally sensitive industries exhibit higher levels of environmental disclosure. This is especially true for energy, utilities, industrials and materials or resources companies [64]. These industries are susceptible to much more stringent regulations and are therefore expected to marshal considerable resources into environmental sustainability issues.

Moreover, some studies [83,87] revealed that studies in developed countries’ industry have a strong and positive relationship with sustainability disclosure. Reference [88] indicated that the industry sector has a significant effect on environmental performance. It is assumed that companies operating in the same industry may adopt similar patterns regarding the sustainability information they publish [31,89]. Whilst there could be both similarities and differences in sustainability reports of companies, this may be attributed to industry-level pressures, leading to homogeneity in their strategies [90]. As a result, it should be expected that there would be compatible patterns of what is deemed material ESG indicators [31]. However, other company-level characteristics such as board size and diversity also play a significant role in the determination of materiality disclosure [32].

Reference [7] found that there was an increase in SR by companies operating in controversial environments such as basic materials and that industries that were less inclined to CSR are those that were previously characterised by lower levels of SR. There is evidence that sustainability ratings remain a challenge for the financial sector, however there is still much space for improvement through its lending and investing [91].

According to [92] the financial sector contributes to sustainability both positively and negatively. Reference [93] argues that companies affiliated in sustainability-sensitive industries are more likely to disclose environmental information whereas companies operating in the financial sector revealed a statistically significant negative effect. Therefore, there is a need to identify sector-specific ESG indicators that take sectorial risks and vulnerabilities into account [8,9]. Reference [9] asserts that sustainability topics that are most likely to influence future risk and financial performance of companies vary across different industries.

Referenece [94] conducted a seven year period multi-sector longitudinal study on the reliability of assurance statements and their contribution to stakeholder accountability and found that although sector-specific specificities were observed, the main findings were that they do not appear to differ significantly between the sectors. Reference [94] found that industry plays a significant role in the determination of materiality disclosure. The following hypotheses are proposed based on the above discussion.

Null Hypothesis:

There are no significant differences between ESG ratings of different industries.

Alternate Hypothesis:

There are significant differences between ESG ratings of different industries.

4. Materials and Methods

The research design is a quantitative inquiry that involves statistical procedures for the data analysis and interpretation of the research results. Purposive sampling allowed the researchers to decide on the companies that fit the purpose of the study and to position it in the context of sustainability. Therefore, future researchers should exercise utmost caution when extrapolating results to other companies that are not constituents of the FTSE/JSE RI Index and should be mindful of the extent to which they can confidently extrapolate the results to a wider population.

Quantitative data from six sectors, with a total of 75 companies were collected and analysed. The time horizon of the study is confined to the 2017 financial year to capture revised JSE listing requirements announced in May 2017 after the King IV™ comply or explain principle. All companies assessed are subscribers to FTSE/JSE RI Index. the analysis of variance (ANOVA), multiple comparison Tukey HSD test and matched-pairs differences were used to test the research hypothesis and to understand whether SP vary across sectors. Therefore, the pairwise comparison method was conducted to compare SP between industries.

According to [95] industry and some company-level characteristics determine materiality of SR disclosures. The study therefore applied content analysis to extract SP data of 75 companies drawn from different industries. These companies were active on the FTSE/JSE RI Index and were captured independently by a rating Agency called the CSRHub. The CSRHub ESG ratings have been used previously in academic research [96]. The CSRHub ESG rating agency is a B Corporation which is also an organisational stakeholder with the Global Reporting Initiative (GRI), a silver partner with Carbon Performance Project (CDP). The CSRHub is a founding member of The Alliance of Trustworthy Business Experts (ATBE) and supports both the Global Initiative for Sustainability Ratings (GISR) and the International Integrated Reporting Committee (IIRC) [97]. The CSRHub has a comprehensive information aggregation tool with transparent ratings and rankings of 22,318+ companies from 135+ industries in 148+ countries. The CSRHub has the largest contribution of data coming from leading ESG data sources [97]. The CSRHub’s overall ratings are based on four categories: environment, employees, community and governance, comprised of twelve different sustainability areas.

The CSRHub is a web-based tool that provides public access to ESG ratings. The CSRHub’s ratings and metrics are drawn from more than 370 sustainability data sources. To compute the ESG ratings the CSRHub uses sustainability information from its data sources. Each source’s information is analysed with a software which converts data into a 0 to 100 score (zero is worst, 100 is best). Data is then weighted and normalised across all companies to remove bias and to create a more consistent rating. This data is further mapped into one of twelve different sustainability areas and processed to produce ratings. The CSRHub is widely used in academic research.

The qualifying criterion for the content analysis is that a company should fall under the FTSE/JSE RI Index. The unit of analysis is individual CSRHub reports of the FTSE/JSE RI Index. The study focuses on data collection from six independent sectors, namely basic materials, consumer goods, financials, health care, industrial and technology (Appendix A:

Table A1. CSRHub Ratings by Company.

Industry	Company	Community Development and Philanthropy	Human rights and Supply Chain	Product	Compensation and Benefits	Diversity and Labour Right	Training and Health and Safety	Energy and Climate Change	Environment Policy and Reporting	Resource Management	Board of Directors	Leadership Ethics	Transparency and Reporting
Basic Materials	AECI	63	44	57	61	61	60	60	61	58	63	63	53
Basic Materials	Anglo American	49	47	54	57	59	51	52	63	53	55	45	50
Basic Materials	Anglo American Platinum	49	44	52	49	53	47	54	64	53	48	43	53
Basic Materials	Anglogold Ashanti	43	37	45	45	52	36	49	61	46	55	46	54
Basic Materials	African Rainbow Minerals Ltd.	66	43	58	68	66	64	64	64	64	51	51	54
Basic Materials	Assore Ltd.	58	27	55	59	46	55	43	56	57	40	46	40
Basic Materials	BHP Billiton	46	53	56	65	62	58	53	62	47	61	45	50
Basic Materials	Exxaro Resources	50	43	54	55	57	52	61	65	56	47	50	51
Basic Materials	Gold Fields	49	42	51	44	53	40	53	65	54	52	48	53
Basic Materials	Glencore	43	46	43	51	55	49	51	58	45	56	44	49
Basic Materials	Harmony	61	36	64	70	57	58	60	70	58	65	67	68
Basic Materials	Impala Platinum Hlds	59	35	69	66	70	65	58	66	60	66	57	61
Basic Materials	Kumba Iron Ore	42	48	55	58	62	54	60	68	51	50	48	55
Basic Materials	Mondi Ltd.	56	53	67	53	59	52	59	73	61	55	44	51
Basic Materials	Mondi Plc	61	56	72	58	64	65	68	77	63	63	51	59
Basic Materials	Northam Platinum	70	38	69	71	68	57	54	61	59	59	63	61
Basic Materials	Omnia Holdings Ltd.	67	49	52	55	63	67	61	64	59	50	59	52
Basic Materials	South32	47	49	62	54	58	59	44	54	44	63	47	45
Basic Materials	Sappi	56	53	68	64	62	60	55	73	55	49	48	56
Basic Materials	Sibanye Gold	52	29	55	43	54	55	50	54	52	65	51	55
Basic Materials	Sasol	53	38	63	51	55	50	47	65	52	55	46	55
Consumer goods	AVI	67	46	59	65	63	64	42	59	54	61	61	53
Consumer goods	British American Tobacco PLC	51	39	48	58	58	57	65	66	53	64	43	50
Consumer goods	Compagnie Financiere Richemont AG
Consumer goods	Clicks Group Ltd.	55	43	49	60	61	62	63	53	52	57	49	47
Consumer goods	Curro Holdings	46	43	49	47	49	48	50	49	54	49	50	38
Consumer goods	Mr Price Group	56	45	60	56	62	58	60	53	51	42	39	40
Consumer goods	Massmart Holdings	42	47	60	65	75	61	56	64	53	55	55	58
Consumer goods	Naspers	53	51	59	51	52	52	63	61	57	45	39	36
Consumer goods	Oceana Group	74	51	69	51	68	69	61	65	63	65	66	61
Consumer goods	Pioneer Food Group	54	57	64	65	66	58	59	58	53	51	45	48
Consumer goods	Pick N Pay Stores	51	49	63	61	66	59	62	63	59	52	52	54
Consumer goods	Steinhoff International Holdings N.V.	41	44	58	63	62	52	54	59	46	51	44	47
Consumer goods	The Spar Group	53	45	59	58	62	58	65	62	59	52	50	51
Consumer goods	Tiger Brands	54	46	61	63	62	55	59	59	59	48	47	48
Consumer goods	The Foschini Group Ltd.	50	39	59	49	61	57	60	57	50	51	42	48
Consumer goods	Tongaat Hulett	59	43	56	54	63	72	54	58	53	63	64	56
Consumer goods	Truworths International	47	46	55	56	58	54	60	52	53	49	47	46
Consumer goods	Woolworths Holdings	61	62	66	64	65	61	68	71	68	52	52	57
Financials	Attacq Limited	53	47	55	49	53	53	58	58	62	52	52	44
Financials	Barclays Africa Group Ltd.	55	50	58	51	60	56	61	69	57	39	39	52
Financials	Capital & Counties Properties PLC	54	51	55	55	51	62	69	58	64	64	53	37
Financials	Coronation Fund Managers	50	50	60	48	58	53	63	52	51	53	46	36
Financials	Capitec Bank Hldgs Ltd.	46	43	51	62	63	61	54	48	46	36	36	33
Financials	Discovery Ltd.	46	48	65	68	68	57	64	58	51	39	45	49
Financials	Firstrand Limited	58	54	64	63	63	59	64	67	63	43	48	52
Financials	Growthpoint Prop Ltd.	50	51	51	69	67	59	75	70	68	49	49	52
Financials	Hammerson Plc	62	60	66	72	66	69	72	78	74	64	53	51
Financials	Hyprop Investments Ltd.	44	47	43	62	62	67	66	54	58	49	47	44
Financials	Investec Ltd.	61	48	63	52	64	57	62	64	56	34	35	44
Financials	Investec PLC	60	50	65	59	63	57	62	65	55	52	40	47
Financials	Intu Properties Plc/ Capital shopping centres Plc	54	63	71	68	63	70	71	75	70	68	57	55
Financials	JSE	72	38	66	60	57	60	55	51	70	60	64	48
Financials	Liberty Hldgs.	49	46	56	59	63	47	56	55	49	42	40	48
Financials	MMI Holdings	46	43	54	53	59	45	62	55	49	46	43	47
Financials	Nedbank Group	58	53	64	61	69	63	68	69	63	39	43	52
Financials	Old Mutual Ltd.	49	45	55	52	53	52	53	52	54	50	50	43
Financials	Quilter
Financials	Redefine Properties	48	50	47	67	67	65	68	58	61	43	46	44
Financials	Standard Bank Group	57	56	63	58	65	57	68	70	58	37	39	53
Financials	Sanlam	56	47	60	61	69	57	65	67	60	48	48	55
Financials	Santam	76	53	58	64	67	63	61	60	69	59	62	58
Health Care	Aspen Pharmacare Holdings	51	45	65	61	59	59	62	66	60	43	45	48
Health Care	Life Healthcare Group Holdings	49	51	57	62	63	61	64	57	56	54	48	45
Health Care	Mediclinic International plc	52	53	56	49	50	56	62	69	63	58	44	44
Health Care	Netcare	56	50	63	54	61	61	66	62	57	46	46	50
Industrials	Barloworld	63	49	63	69	66	55	60	64	65	57	62	66
Industrials	Grindrod	67	39	57	51	55	67	57	64	62	61	64	51
Industrials	Imperial Holdings	48	49	51	54	55	46	58	59	54	50	42	47
Industrials	KAP Industrial Holdings Ltd.	63	42	58	58	55	61	49	63	57	67	51	44
Industrials	Nampak	60	49	58	60	66	61	64	64	59	63	58	60
Industrials	Remgro	44	44	54	55	56	54	65	58	50	41	40	41
Industrials	Reunert	65	41	69	59	61	55	62	68	67	65	61	57
Technology	EOH Holdings Ltd.	67	40	48	50	55	61	51	55	66	56	52	46
Technology	MTN Group	59	46	55	55	59	57	59	62	55	47	43	50
Technology	Telkom SA SOC	51	47	46	61	58	61	60	58	51	55	48	48
Technology	Vodacom Group	58	49	63	63	67	62	65	65	59	49	47	54

). The CSRhub dimensions scores (community, employees, environment, and governance) were validated using exploratory factor analysis (EFA), and varimax rotation confirmed all four dimensions [96].

Sustainability data allow the study to compare the sustainability practices of companies across industries. The CSRHub data enables comparison of company-specific sustainability ratings with peer companies, industries and other companies across the globe [96]. Although the paper articulates the origins of the JSERI Index and how it is computed from the individual company scores, the JSE RI Index is not the subject of analysis. Each company falls into one of the six sectors and the composite index was not used. This ensured that the datasets were independent, and the means were therefore compared across the sectors.

5. Presentation of Results

This section of the study is structured into two (2) sub-sections as follows: Section 5.1 presents the frequency distribution of companies from six (6) sectors that informed the study. Section 5.2 presents the industry analysis and discussions of results.

5.1. Frequency Distribution by Industry

A total of six sectors, made up of 75 public companies listed on the FTSE/JSE RI were selected for this study. The data from the content analysis were analysed using IBM-SPSS 27 (company, city, state abbreviation if USA, country). The population and sampling of the study is summarised in

Table 1. Frequency counts of companies that participated in the survey.

Industry	Frequency	Percentage (%)
Basic Materials	21	28
Consumer goods	17	23
Financials	22	29
Health Care	4	05
Industrials	7	09
Technology	4	05
Total	75	100

.

Table 1 presents the frequency distribution of companies by industry. The majority (29%) of the companies fall under the financial sector, followed by basic metals (28%) and thereafter consumer goods (23%). It is also clear that companies belonging to the industrials; health care; and technology sectors represent 9% and 5% of the index, respectively.

Table 2. List of the CSRHub validated constructs.

Dimension	Sub-Category	Industry Acronyms
Community	Community development and Philanthropy	IC1
	Human rights & Supply Chain	IC2
	Product	IC3
Employees	Compensation and benefits	IE1
	Diversity and labour rights Training, Health & Safety	IE2 IE3
Environment	Energy and climate change	IEN1
	Environment policy & reporting	IEN2
	Resource management	IEN3
Governance	Board of directors	IG1
	Leadership ethics	IG2
	Transparency and reporting	IG3

Source: [96].

depicts the CSRHub validated variables that will be used to measure the SP of the index. Full details of the CSRHub constructs are shown in Appendix A.

5.2. Industry Analysis and Discussions

The purpose of this section is to present industry descriptive statistics and the ANOVA, which mainly focusses on the understanding of the sample under observation. Sustainability performance data of the FTSE/JSE RI Index was sourced from the CSRHub. Data was compiled in Microsoft Office Excel and further analysed through various statistical methods. Sustainability ratings are presented quantitatively based on the CSRhub rating methodology where zero is regarded as worst SP, and 100 best. The higher the rating the better the SP. The analysis was carried out in IBM SPSS Statistics 21.

Table 3. Descriptive statistics by industry (N = 75).

Level	Number	Mean	Std Error	Lower 95%	Upper 95%
Basic Materials	21	54.810	0.997	52.820	56.799
Consumer Goods	17	55.059	1.108	52.848	57.270
Financials	22	55.182	0.974	53.238	57.125
Health Care	4	55.250	2.285	50.692	59.808
Industrials	7	56.571	1.727	53.126	60.017
Technology	4	54.750	2.285	50.192	59.308

depicts an overview of the CSRhub rating by industry.

The CSRhub rating is used as an indicator of perceived SP. Table 3 shows that companies affiliated with industrials scoring the highest mean of 56.6, whilst companies under technology scored the lowest mean of 54.7. This may be attributable to sector-specific environmental issues which have limited relevance to low environmental-impact industries such as technology [98] due to diverse contexts across reporting industries. According to [86], companies operating in sensitive industries (industrials) tend to produce more environmental performance information in their reports. Such companies are susceptible to stringent regulations as they are highly likely to cause further environmental damage [99,100]. Reference [101] also found a link between sector affiliations and the degree of SR citing that industry type was found statistically significant in explaining the extent of social disclosure. Financials and health care would be linked with low reporting, whilst basic materials and industrials are associated with high reporting. This agrees with [85] who found that industry membership influences the adoption of integrated reporting. According to [102], companies from high social and environmental impacts need to engage more extensively in SR in order to respond to sector-specific stakeholder pressures. A one-way ANOVA was conducted for the Index’s CSRHUB score to test whether there are any significant differences among the means of the Index scores for the various industries.

Table 4. One-way ANOVA by industry.

Source	DF	Sum of Squares	Mean Square	F Ratio	Prob > F
Industry	5	17.41	3.48	0.17	0.97
Error	69	1440.67	20.88
C. Total	74	1458.08

presents the one-way ANOVA by industry.

Table 4 illustrates that there are no statistically significant differences between the mean SP from one industry with another at 95.05% confidence level with the F-ratio equal to 0.1668, and a p-value > 0.05 (0.9739) failing to reject the null hypothesis. In other words, the null hypothesis that there is no statistically significant difference in ESG ratings for different industries could be accepted. The null hypothesis was retained concluding that there is no evidence that ESG ratings vary between industries in the population examined. Consistent with [100], the results of our analysis did not reveal any significant differences between sectors.

The researchers further investigated ESG scores that make up ESG ratings using a one-way ANOVA test. The parametric F-test will indicate whether there is a statistical difference between the means. In the next section, the study considers individual scores with a focus on those that show significant differences (

Table 5. One-way ANOVA for individual scores by industry.

	Source	DF	Sum of Squares	Mean Square	F Ratio	Prob > F
IC1	Industry	5	317.623	63.525	23.553	<0.0001 *
	Error	70	188.798	2.697
	C. Total	75	506.421
IC3	Industry	5	75.083	15.017	5.541	0.0002 *
	Error	70	189.694	2.710
	C. Total	75	264.776
IE1	Industry	5	62.578	12.516	4.601	0.0011 *
	Error	70	190.422	2.720
	C. Total	75	253

Notes: * means statistically significant at 1% level respectively.

).

Table 5 shows that individual scores for community development and philanthropy (IC1) returns an F-statistic of 25.5 with a p-value of <0.0001 *, human rights and benefits (IC3); returns a F-statistic of 5.5 and a p-value of 0.0002 * and compensation and benefits (IE1) returns a F-statistics of 4.6 with a p-value of 0.0011 *. Individual scores show statistically significant differences when compared across industries. Since the p-values for individual scores are too small (≤0.05), there is substantial evidence against the null hypothesis. The null hypothesis is therefore rejected, and the alternative hypothesis accepted. The results are consistent with [64,83,84,87,88,90,101,102].

A further analysis to investigate individual differences with respect to ESG indicators was conducted to avoid a possible Type 1 error. The purpose of using other tests was to ascertain the conclusion on whether to reject or accept the null hypothesis. The overall score is 55.3 and this was aggregated using the industry CSRHub scores’ average for companies belonging to respective industries. The authors investigated discrepancies between company and overall ESG scores focusing on deviations between specific industries. A parametric test was used to drill down to individual ESG indicators by industry.

In this section the study only focuses on the differences between individual ESG scores and how they are related to the overall ESG score of 55.3. The multiple comparison Tukey HSD tests were used to identify differences between the As and the Bs. In this test, industries that are not connected by the same letter are significantly different. The multiple comparison Tukey HSD tests revealed that three (3) out of twelve ESG indicators have significant differences namely: IC1: (<0.0001 *), IC3 (0.0002 *) and IE1 (0.0011 *). The HSD test results are displayed in

Table 6. IC1 Connecting letters report by industry.

Level			Mean
Basic Materials	A		53.286
Industrials	A		53.143
Technology	A		52.250
Consumer Goods	A		52.176
Financials		B	48.739
Health Care		B	48.000

,

Table 7. IC3 Connecting letters report by industry.

Level				Mean
Technology	A	B		56.500
Basic Materials	A			55.857
Industrials	A	B		55.286
Consumer Goods	A	B	C	54.588
Financials		B	C	54.087
Health Care			C	52.250

and

Table 8. IE1 Connecting letters report by industry.

Level			Mean
Health Care	A		52.000
Technology	A	B	51.500
Financials	A		51.174
Industrials	A	B	50.714
Consumer Goods	A	B	50.588
Basic Materials		B	49.143

to compare differences between letters, that is, As and Bs by industry.

5.2.1. Community Development and Philanthropy (IC1)

In Table 6 and Figure 1 it was investigated whether IC1 shows differences between individual ESG scores and the overall industry score.

The multiple comparison Tukey HSD tests in Table 6 and Figure 1 revealed that on the community development and philanthropy variable, financials and health Care (the two lowest means) differ significantly from basic materials; industrials; technology; and consumer goods (all higher means). Financials and basic resources has the highest difference of –20.8613, p-value 0.0001 *, followed by financials and consumer goods −16.4194, p-value of 0.0001 * whilst health care and basic resources show a difference of −11.9048 with a p-value of 0.0101 *. The p-values are too small (≤0.05) which means that the null hypothesis is not supported. Therefore, the null hypothesis that there is no significant difference in this SP measure when compared to overall industry score is rejected.

5.2.2. Human Rights and Supply Chain (IC3)

In Table 7 and Figure 2 it was investigated whether IC3 shows individual differences between individual ESG scores and the overall industry score.

The parametric test in Table 7 and Figure 2 revealed that the human rights and supply chain variable has the highest mean difference between technology and health care (4.250), with a p-value of 0.0064 *, followed by basic materials and health care (3.607143) with a p-value of 0.0020 whereas Industrials and Health has a difference of 3.035714, with a p-value of 0.0485 *. Basic materials and financials show the least difference (1.770) and p-value of 0.0084 *. P-values that are less than 0.05 means that the null hypothesis is not supported. Therefore, the null hypothesis that there is no significant difference in SP measures when compared to overall industry score is rejected.

5.2.3. Compensation and Benefits (IE1)

In Table 8 and Figure 3, it was investigated whether IE1 show differences between individual ESG scores and the overall industry score. The compensation and benefits (IE1) measurement is portrayed in Table 8 and Figure 3.

The multiple comparison Tukey HSD test on the compensation and benefits dimension revealed a significant difference between health care and basic materials (2.857), with a p-value of 0.0260 * and between financials and basic materials (2.031) with a p-value of 0.0016 *. There is evidence that the calculated p-values are less than 0.05 indicating strong evidence against the null hypothesis, therefore the null hypothesis should be rejected.

However, the HSD test revealed that there is a difference in the means of SP measures of individual scores when compared to the overall industry score. Therefore, the alternate hypothesis is accepted and conclude that there are significant differences on the three (3) performance indicators: IC1 (<0.0001 *), IC3 (0.0002 *) and IE1 (0.0011 *). The existence of a sector effect in SP results is supported by [91,92]. According to [91], companies affiliated in sustainability-sensitive industries such as healthcare, basic materials, and energy sectors are more likely to disclose environmental information whereas companies operating in the financial sector revealed a statistically significant negative effect.

6. Conclusions

This article examined the SP of companies listed on the FTSE/JSE RI Index using ESG indicators. The index is representative of six industry sectors, namely basic materials, consumer goods, financials, health care, industrials and technology. The CSRhub rating as an indicator of perceived SP indicated that companies affiliated with Industrials scored the highest mean of 56.6, whilst companies under technology scored the lowest mean of 54.7. This might be an indication of the environmental issues encountered by Industrials. The result indicating that financials and health care could be linked with low reporting, whilst basic materials and industrials are associated with high reporting confirmed the result of [85] who found that industry membership influences the adoption of integrated reporting. Furthermore, no evidence was found that ESG ratings vary between industries in the population examined and therefore it is in agreement with the results of [100]: the results of our analysis did not reveal any significant differences between sectors.

The article answers the hypothesised question by assessing the ESG indicators of the FTSE/JSE RI Index to determine if companies in different industries respond differently to divergent stakeholders’ interests, needs and pressures which may in turn influence their priorities when prioritising which ESG activities to undertake. From the above discussion, the results accept the null hypothesis. The study found that industry plays a significant role in determining the SP of a company represented on the FTSE/JSE RI Index. This is coherent with prior studies [52,78,79,85,86]. It is therefore concluded that ESG ratings of companies are not determined by the industry to which they belong.

7. Future Research

Future studies can look at a longitudinal analysis to shed light on the pattern of sustainability practices of FTSE/JSE RI by industry.