The Impact of ESG Practices in Industry with a Focus on Carbon Emissions: Insights and Future Perspectives

Abstract

In recent years, interest in economic, environmental and social sustainability has increased significantly. Companies are gradually adopting behaviors aimed at achieving the Sustainable Development Goals, which represent a crucial aspect of the 2030 Agenda. In practice, they are currently incorporating organizational strategies that jointly consider environmental, social and corporate governance (ESG), with the aim of generating value for all stakeholders. This paper aims to review, through a recognized seven-step procedure, the current literature on the impact that ESG practices have in industry, with a focus on the reduction of carbon emissions. The results are extremely useful for both researchers and entrepreneurs. The bibliometric analysis shows that interest in the ESG paradigm has grown considerably in the last three years. Furthermore, through the analysis of 13 key documents, it emerges that (i) the European community is pushing significantly towards the adoption of ESG practices through new regulations, (ii) the link between industrial operations and carbon emissions can no longer be neglected within the factory of the future, and (iii) significant efforts are still needed to standardize, in terms of variables and KPIs, the adoption of ESG-centric strategies.

1. Introduction

Environmental challenges have increased awareness of sustainability issues worldwide, changing traditional investments that are aimed only at maximizing profit to ones that support, especially, sustainability.

Environmental, social, and governance (ESG) integration has gained popularity since it was first introduced by the United Nations in 2004 [1] and is now regarded as one of the most innovative and extensively used sustainability metrics globally.

The definition of ESG can obviously be broken down into the sub-definitions of its three pillars [2,3,4]:

• The environmental pillar considers how a company performs with respect to the natural environment, and, therefore, its impact on air quality, biodiversity, carbon footprint and greenhouse gas emissions, waste and water quality.
• The social pillar focuses on the company’s management of its relationships with employees, suppliers, customers and people in general. Among other things, human rights, privacy policies, and efforts to help poor communities are the main aspects taken into consideration by this pillar.
• The governance pillar includes company leadership, internal controls, audits, board composition (including diversity), corruption, executive compensation and policies.

Today, the goodness of company activities is often evaluated based on the aforementioned pillars. In this context, it is important to state that the interest of companies in sustainability-oriented approaches has been influenced by growing demand from official regulations, investors and stakeholders in enterprises to declare ESG performance [5].

Governments around the world are increasingly taking an interest in measures that look at environmental and social sustainability, such as ESG [6]. Moreover, investors play a crucial role in promoting ESG practices and ethical behavior, and there are several examples in the literature of integrating ESG within the decision-making process, as well as to identify, manage and minimize risks [7,8].

In this regard, in recent years, the concept of socially responsible investment (SRI) [9,10] has developed and spread more and more, which refers to the current trend of integrating sustainability and ESG into the investment decision-making process [11]. Additionally, sustainable development, through the implementation of new, or improved, manufacturing and operational processes, as well as through efforts that produce innovative and sustainable goods and practices, plays a significant role in achieving important environmental performance results [12].

It is, therefore, definitely clear that ESG factors have been gaining considerable attention in recent years due to increased focus on sustainable development and responsible investing. Various studies, in the literature review form, have explored the link between ESG and numerous other factors, such as organizational learning [13], social innovation, energy transitions and circularity [14], business models [5], corporate value [15] and the COVID-19 outbreak [16]. These studies have highlighted the importance of ESG in promoting sustainable practices and enhancing business performance. However, despite the significant attention given to ESG in the literature, there is a clear gap in research exploring how acting on ESG can impact carbon emission reduction in the industry. Through this scientific study, the authors contribute to the state of the art in several ways. Firstly, the study aims at filling the gap in the literature by specifically examining the impact of ESG on carbon emission reduction in the industry sector. This is an important area of research, even in response to the numerous effects of global warming [10], as the industry sector is a significant contributor to greenhouse gas emissions. Secondly, the study provides a rigorous and comprehensive literature review on this topic, synthesizing the most relevant scientific works in this area. This helps to provide a clearer understanding of the current state of knowledge in terms of current findings and identify gaps and areas for further research. Thirdly, this study examines the adoption of ESG-centric strategies in relation to carbon emission reduction. This provides insights on how companies can effectively integrate ESG criteria into their operations in order to achieve sustainable outcomes. Overall, the work adds value to the existing body of knowledge on the relationship between ESG and carbon emission reductions in the industry sector and provides practical implications for policymakers, industry leaders and academics looking to further advance sustainability and ESG practices in this sector.

The remainder of this paper is organized as follows. Section 2 addresses the importance of ESG practices in industry, while Section 3 explains the seven-step procedure used to conduct the literature review. Its application is shown in Section 4, Section 5, Section 6 and Section 7. Specifically, Section 4 provides details about database and keyword selection, document collection and inclusion/exclusion criteria, while Section 5 shows the results of the bibliometric analysis. Section 6 and Section 7 present the document analysis and future research perspectives, respectively. Some conclusions are in Section 8.

2. Environmental, Social and Governance for Industry

Although the idea of ESG is not brand new, the COVID-19 pandemic has given it enormous importance [6]. According to recent studies, investors are increasingly considering ESG factors when choosing investments [17,18,19,20]. It has also been found that businesses that adopt ESG practices generate greater profits than those that do not [17]. One of the reasons is that, nowadays, even more people are getting interested in ecologically friendly and sustainable products and services, as well as in greener production techniques [21]. In this context, researchers are putting more emphasis on the need for ethical business practices and how technological innovation inside companies can bring about green solutions and help to lessen the adverse effects of industrialization. Technology is, in fact, a crucial component of the worldwide endeavor to reach net zero emissions; investments in research and development can definitely lead to technological eco-innovations, whose main challenge is to create “green” products that are also both economically and commercially viable [22,23]. However, it is significant to note that eco-innovation effects are not always immediately obvious [24]; in this regard, more empirical knowledge is needed to cut carbon emissions through innovation. Seeking to meet this need comes the support of many international organizations, including the United Nations, the European Union, and regulators around the world that set climate objectives to reduce overall carbon emissions in response to pressure from environmental degradation and international climate negotiations [25,26].

In the European Union, a number of ESG-related regulation initiatives, which impact on how businesses need to be conducted, have recently been defined. The Climate Benchmarks Regulation (EU 2019/2089) is devoted to increasing transparency and comparability in the use of environmental, social, and corporate governance (ESG) criteria in order to give investors information on the environmental sustainability of their investments; the Sustainable Finance Disclosure Regulation (EU 2019/2088) is used to better safeguard end investors while reorienting capital flows toward sustainable investments by boosting transparency among financial market participants and advisers regarding sustainability risks; additionally, the Taxonomy Regulation (EU 2020/852) has been set to address “greenwashing” concerns and to create a standardized taxonomy for classifying financial goods as sustainable at the EU level.

On the other side of the world, another significant effort, approved by all United Nations member states in 2015, is represented by the 2030 Agenda for Sustainable Development. The 2030 Agenda consists of 17 goals, which are an urgent call for action by all countries—poor, rich and middle-income—to promote prosperity while protecting the planet [27]. Among others, the sustainable development goals that are strictly related to the research topics dealt with in this scientific study are gender equality (#5), industry, innovation and infrastructure (#9), reduction of inequalities (#10), responsible consumption and production (#12) and climate action (#13).

Based on the above-reported discussion, it is clear that numerous stakeholders are aware of the critical role that climate protection plays [25], and, therefore, businesses must act to reduce their overall carbon emissions.

In this challenging context, it is important to underline how significant the interest is that the scientific community has in ESG-centric approaches, especially with reference to the industrial context. Figure 1 graphically represents the implementation of ESG practices in different sectors for the data contained in [28]. As can be seen, the industrial sector is the one of greatest interest.

In addition, application of the ESG paradigm in industry requires conspicuous and decisive efforts and contributions at different levels, as shown in Figure 2. At the highest level, world organizations have the task of setting the guidelines to be followed as well as the objectives to be achieved. Moreover, people from one side need to adopt ethically correct behavior on a daily basis, while all industrial stakeholders, on the other side, have a duty to contribute to the adoption of ESG practices, which change the perspective from exclusively profit-oriented to sustainability-centric.

3. Literature Review Methodology

This research study presents a literature review related to how the application of the ESG paradigm in industry impacts on carbon emission reduction. The review methodology can be conceptualized in the following seven steps [29,30,31,32]:

STEP 1—Database selection: this phase consists of the selection of the scientific databases (e.g., Scopus, Web of Science, etc.) within which to obtain the data and information through which to carry out the literature review in a structured and logical way.

STEP 2—Keyword selection: once the scientific database (or databases) is chosen, it is necessary to select the keywords through which to retrieve the documents present in the literature. This decision is extremely critical, because on the one hand it is necessary to choose a sufficient number of keywords to fully cover the objectives of the literature review, and on the other it is necessary to limit the number of queries so that there is not too high a number of out-of-scope documents.

STEP 3—Document collection: once databases and keywords are identified, it is possible to proceed with the collection of documents useful for identifying research trends and future challenges regarding a well-defined topic. In this phase, the keywords of interest are combined through the use of logical connectors such as “AND” and “OR” in order to carry out an exhaustive search.

STEP 4—Inclusion/exclusion criteria: once the documents have been collected, it is necessary to filter them with appropriate inclusion/exclusion criteria in accordance with the research objectives. Commonly used filters concern the year of publication, the topics of the journal, the type of document (e.g., journal article, conference paper, etc.), the language used (e.g., exclusion of documents not written in English) and the adopted methodologies (e.g., exclusion of documents that concern purely technical aspects). Correct application of the inclusion/exclusion criteria allows the identification of the documents closest to the purposes of the literature review.

Overall, the first four steps concern the discovery and selection of the most interesting documents for the literature review. They are very critical steps because they significantly influence the effectiveness of the methodology.

STEP 5—Bibliometric analysis: such analysis aims to identify some statistics about the selected documents, such as the number of publications per year, the most prolific authors and journals, the most used keywords, etc. Basically, it makes it possible to identify quantitative and replicable measures. Software tools are frequently used to make this type of analysis reliable, replicable and objective. Some examples are VOSviewer [33], Bibexcel [34], Gephi [35] and CiteSpace [36].

STEP 6—Discussion (document analysis): this step concerns the reading of the full texts of the selected articles, which are then analyzed in a significant level of detail. In this context, they are usually classified on the basis of certain dimensions or parameters and then discussed.

STEP 7—Future research perspectives: after thorough analysis of the selected papers, the reader is provided with information about current research gaps and future research perspectives. This step is useful for anyone who wants to study the selected topic for the first time to have a clear idea about the current state of the art and how to contribute to increasing knowledge.

4. Database and Keyword Selection, Document Collection and Inclusion/Exclusion Criteria

First, the authors focused on research database selection. Among the multiple scientific research databases that collect the contributions of researchers and scholars, the authors decided to select Scopus for the purpose of this study. Scopus contains more than 25,000 active titles and 7000 publishers (e.g., Elsevier, Springer, Taylor and Francis, IEEE, Emerald, etc.), thus delivering more global content (50–230% more depending on region) than the nearest “competitors”. In addition, it brings together advanced analytics and technology enabling broader insight into the research area of interest. Further information on “why choose Scopus” can be found at [37]. As soon as the research database was chosen, the next step was to identify and select the list of keywords being used to carry out the review analysis. Through the document search section of SCOPUS and through the use of the “AND” logical connector, the following searches were conducted:

• (“ESG” AND “Environmental, Social and Governance”) AND “Industry”,
• (“ESG” AND “Environmental, Social and Governance”) AND “Production”,
• (“ESG” AND “Environmental, Social and Governance”) AND “Emission*”,
• (“ESG” AND “Environmental, Social and Governance”) AND “Innovation*”,
• (“ESG” AND “Environmental, Social and Governance”) AND “Manufact*”

Table 1. First search results.

Search Keywords	Results (Number of Documents)
ESG AND Industry	276
ESG AND Innovation	75
ESG AND Emission*	75
ESG AND Production	46
ESG AND Manufact*	38
Total	510

summarizes the results of these searches by reporting for each of them the number of identified documents. At this stage, it has to be remarked that the total number of documents is slightly overestimated, as possible duplicate documents can be contained overall.

A preliminary analysis shows that research activities in the ESG area are strongly reflected in the field of industry. As a next step, in order to make the research workflow more efficient and effective, the authors defined the filtering criteria being used to collect research documents characterized by valuable scientific relevance as well as the ones with content pertinent to this study. Therefore, the next activity was to exclude, from all of the identified research documents, the ones not in English and the ones falling into the following types: “Conference Review”, “Note”, “Editorial”, “Book Chapter” and “Conference Proceeding”. At this point, the number of documents dropped to 387. Additionally, by reading the abstracts of the remaining papers (and in most cases also their full text), it was possible to exclude papers not relevant to the research scope and any duplicates. Thus, the search was further refined to 317 documents, which have been used to carry out the bibliometric analysis, whose description is reported in Section 5.

5. Bibliometric Analysis

A bibliometric analysis was carried out for exploring and analyzing the large volumes of scientific documents and data identified in the previous section. The results of the analysis have made it possible to gain insights on four main factors, whose description is detailed below.

Publication frequency—this expresses the number of scientific studies published each year from 2008 to 2022. Analysis of this parameter reveals, in the last few years, exponential growth in interest and research in the ESG paradigm (see Figure 3). In fact, the need to apply sustainability-oriented strategies to reduce the environmental impact of future production systems is currently intensifying. This recent interest in ESG strategies is one of the main motivations behind this study.

Global scale distribution—this denotes the number of published documents for each country where the study has been conducted. From the analysis, it emerges that, despite the increasing trend in publishing in the ESG area, only a few countries are concentrating their research efforts to tackle how acting on ESG impacts on carbon emission reduction. Figure 4 shows that the United States currently has the highest number of papers published in the ESG area, followed by China, Australia and Europe, where important contributions are made by the United Kingdom and Italy.

Source analysis—this indicates the number of published documents per research source.

Table 2. Number of published documents per source.

Source Name	Published Documents
Sustainability (Switzerland)	50
Business Strategy and the Environment	13
Journal of Cleaner Production	13
Corporate Social Responsibility and Environmental Management	10
Energies	8
Frontiers in Environmental Science	7
Journal of Sustainable Finance and Investment	7
Extractive Industries and Society	5
International Journal of Environmental Research and Public Health	5
Resources Policy	5
Sustainable Development	5
Other journals	<4

is intended to highlight the most prolific sources in the ESG field in terms of published documents. Overall, Sustainability (Switzerland) is the journal with the most contributions on ESG principles, followed by Business Strategy and the Environment and Corporate Social Responsibility and Environmental Management. It can be noted that most of the journals belong to fields such as business and international management and finance. However, there are also journals that mainly offer engineering-oriented contributions, such as Sustainability (Switzerland) and Journal of Cleaner Production.

Research cluster identification—this focuses on analysis of the keywords included in the selected research studies with the aims of (1) depicting a keyword network and (2) identifying the main research clusters. The analysis was carried out using VOSviewer software [33]. Figure 5 depicts the keyword network and the research clusters. The more important the keyword is in terms of recurrence, the bigger the node of the network is. Furthermore, two nodes are closer the more often their keywords co-occur. Five main clusters have been identified: the yellow cluster, which encompasses the sphere of the ESG concept in its delineation in terms of “environmental sustainability” and, especially, “carbon emissions” in the broader framework of “climate change”; the green cluster, which denotes a more driven characterization of “social aspects” for “sustainable development” in reference to “decision making” and “risk assessment” strategies, especially for “investments” (or “sustainable investments”) in “emerging markets” through new technologies such as “machine learning”; the blue cluster, which refers to the more “human” social side, embracing “social impact” and “corporate social responsibility”, especially after the “COVID-19” pandemic; and the red cluster, where “social responsibility” is emphasized by a “governance approach” focused on “innovation” to produce new and positive impacts on “industrial performance”, without losing sight of what is highlighted by the purple cluster, which combines the three pillars of “environment,” “social” and “governance” in the broader concept of “corporate sustainability” for a multi-capital perspective.

6. Document Analysis

The 317 documents selected have been used by the authors as a starting point to carry out the document analysis. However, after going into the details of each of them, only 13 research works were selected, as they fully respond to the requirements and the scope of this scientific study. Basically, for further analysis and discussion, only documents focused on the application of the ESG paradigm for reducing carbon emissions in the manufacturing industry sector were considered. Furthermore, only articles published in journals belonging to at least the 85th percentile were selected, thus giving valuable scientific importance to the outcome of this study.

The selected papers approach ESG issues by focusing simultaneously on one, two or three of the foundational pillars of the ESG paradigm.

Table 3. Document classification by ESG pillars.

Reference	Environment (E)	Social (S)	Governance (G)
Haque (2017) [38]	√	√	√
Danish and Wang (2019) [39]			√
Albitar et al. (2022) [40]	√		√
Hoang et al. (2020) [28]	√		√
Kanashiro (2020) [41]	√		√
Mukanjari and Sterner (2020) [42]		√	√
Azar et al. (2021) [43]		√	√
Chipalkatti et al. (2021) [44]		√	√
Karim et al. (2021) [45]		√	√
Khalil and Nimmanunta (2021) [46]	√	√
Hoang (2022) [47]		√	√
Karagiannopoulou et al. (2022) [48]		√
Zhang and Lucey (2022) [49]	√	√	√

shows a list of the selected papers, highlighting the ESG pillars on which each of them focuses.

It is worth pointing out that the classification of documents as focusing on the environment pillar was assigned only when the topic of “environmental innovation” was specifically mentioned in that document. Otherwise, it would have been trivial to classify all studies as belonging only to that pillar, because the research topic concerns CO₂ correlation. A first important outcome of the classification is that researchers very rarely manage to focus jointly on all ESG pillars.

Below, the authors review, in Section 6.1, the methodologies proposed within the selected research studies, in order to analyze the correlations between ESG pillars in industry and carbon emission reduction and other industrial, environmental and financial impacts; in Section 6.2, the list of ESG variables and key performance indicators (KPIs) (e.g., CO₂ emissions, etc.) considered within the studies; and, in Section 6.3, the main findings of each study. Finally, in Section 6.4, the research studies are clustered and discussed according to the correlations between ESG paradigm and (1) carbon emissions, (2) carbon disclosure and (3) corporate performance.

6.1. Correlation Methodology and Document Insights

This section focuses on the methodologies used within the selected research works for analyzing the correlations between the examined ESG variables and the specific evaluations of KPIs (or response variables), which most often correspond to CO₂ emissions or other industrial, environmental and financial impacts. As, in most cases, the number of ESG variables varies depending on the study, in order to measure the relationships between these multidimensional variables multivariate regression was used. Multivariate regression is a technique adopted to measure the degree to which various independent variables and various dependent variables are linearly related to each other [50]. This technique is used to forecast the behavior of the response variable (i.e., CO₂ emission) based on its related predictor factors (i.e., ESG variables) after multivariate regression has been performed. Further information on the multivariate regression technique, including the analytical model form, can be found in [50].

Table 4. Document insights.

Reference	Sample Source	Data Source	Observation Period
Haque (2017) [38]	FTSE ALL	Trucost	2002–2014
Danish and Wang (2019) [39]	BRICS Countries	BP Statistical Review/World Bank	1996–2017
Albitar et al. (2022) [40]	London Stock Exchange	Eikon	2016–2020
Hoang et al. (2020) [28]	USPTO	Bloomberg ESG	2007–2016
Kanashiro (2020) [41]	S&P 500	U.S. Environmental Protection Agency	2006–2011
Mukanjari and Sterner (2020) [42]	STOXX Europe 600	Bloomberg/Thomson Reuters	COVID-19 pandemic
Azar et al. (2021) [43]	Trucost	Trucost/FactSet/ LionShares	2005–2018
Chipalkatti et al. (2021) [44]	World Bank	World Development Indicators	2006–2018
Karim et al. (2021) [45]	UKFTSE	Eikon	2013–2019
Khalil and Nimmanunta (2021) [46]	Thomson Reuters (7 Asian Economies)	Thomson Reuters	2015–2019
Hoang (2022) [47]	US Stock Markets	Bloomberg ESG	2005–2018
Karagiannopoulou et al. (2022) [48]	Dow Jones Sustainability World Index	S&P Global/Thomson Reuters	2001–2020
Zhang and Lucey (2022) [49]	Global firms (Not specified)	Thomson Reuters/Bloomberg ESG	2016–2020

reports, for each study, the sources from which the multivariate regression inputs were selected as well as the data observation period. The sample source column lists the market platforms from which the analyzed companies were selected; the data source column presents the data platforms used to collect ESG data from the selected companies; and, finally, the last column is the observation period, namely, the time slot over which data have been collected.

The analysis reveals that the documents do not present homogeneity from one to another. From what can be observed, it is evident that the samples used never overlap and are not suited for any sort of comparison. In addition, the observation periods as well as the data sources are often very different. Different data sources can mean different data, and different data can lead to different results. This means that, even though the studies are very precise, it is difficult to draw standardized conclusions that can apply to the issue in general.

6.2. ESG Input Variables and KPIs

The next step of the study was to identify, within each selected document, the ESG variables given as input to the multivariate regression formulas as well as the KPIs (or response variables) to be calculated by means of the same formulas.

Table 5. ESG variables for the 13 selected documents.

Reference	ESG Variables	ESG Variable Descriptions
Haque (2017) [38]	Board independence	Percentage of independent directors on the board
	Board gender diversity	A dummy variable that is equal to 1 if there is female or foreign representation on the board and 0 otherwise
	Board size	Natural log of the number of board members
	Firm size	Natural log of the market capitalization of the firm
	Return on asset (ROA)	Net profit over total assets
	Leverage	The ratio of total debt to total assets
	Executive compensation	Natural log of total compensation paid to all senior executives (in USD) as reported by the firm
	Other (#14)	-
Danish and Wang (2019) [39]	Other (#7)	-
Albitar et al. (2022) [40]	Firm size	Natural log of total assets
	Return on asset (ROA)	Return on assets, measured by net income to total assets
	Leverage	Debt to total asset ratio
	Board size	A dummy variable that is equal to 1 if the number of board members is higher than the industry median, otherwise 0
	Board independence	A dummy variable that is equal to 1 if the percentage of independent directors on the board is higher than the industry median, otherwise 0
	Board diversity	A dummy variable that is equal to 1 if the percentage of female board members is higher than the industry median, otherwise 0
	Executive compensation	An indicator variable that is equal to 1 if executive compensation is linked to environmental performance
	Other (#10)	-
Hoang et al. (2020) [28]	Firm size	Natural logarithm of total assets
	Leverage	Average total assets/average total common equity
	Other (#10)	-
Kanashiro (2020) [41]	Return on asset (ROA)	Net profit over total assets
	Board independence	% independent board members
	Other (#10)	-
Mukanjari and Sterner (2020) [42]	Firm size	Natural log of market capitalization
	Leverage	Financial leverage calculated as average total assets divided by average total common equity and a measure of a firm’s debt level
	Return on asset (ROA)	Net profit over total assets
	ESG score	A dummy variable equal to 1 for firms in the top quartile of environmental performance, otherwise 0
	Other (#8)	-
Azar et al. (2021) [43]	Firm size	Logarithm of the firm’s total assets
	Return on asset (ROA)	Net income scaled by total assets
	Leverage	Total debt scaled by total assets. Total debt is the sum of long-term debt and the debt in current liabilities
	Other (#22)	-
Chipalkatti et al. (2021) [44]	CO2 emissions	Expressed in tons per capita
	ESG score	Not specified
	Other (#10)	-
Karim et al. (2021) [45]	CO2 emissions	Measured in a million tons
	ESG score	Not specified
	Other (#6)	-
Khalil and Nimmanunta (2021) [46]	Firm size	ln (number of employees)
	Other (#18)	-
Hoang (2022) [47]	Firm size	Natural logarithm of book value of total assets
	Return on asset (ROA)	Net income scaled by total assets
	Leverage	Long-term debt to total assets
	Board size	Natural logarithm of the number of directors in the board of directors
	Board gender diversity	Natural logarithm of the number of female directors in the board of directors
	Board independence	Natural logarithm of the number of independent directors in the board of directors
	CO2 emissions	The annual CO2 emissions of the country in megaton
	Other (#10)	-
Karagiannopoulou et al. (2022) [48]	Other (#8)	-
Zhang and Lucey (2022) [49]	ESG score	Not specified
	Firm size	Logarithm of total assets
	Other (#9)	-

and

Table 6. KPIs for the 13 selected documents.

Reference	KPIs	KPI Descriptions
Haque (2017) [38]	Carbon performance	Number of firm-specific activities to deal with climate change and GHG emissions expressed as the natural log of total GHG emissions in tons
Danish and Wang (2019) [39]	Carbon dioxide emission	CO2 emissions per capita
Albitar et al. (2022) [40]	CO2 emissions	The natural logarithm of the total CO2 emissions of the company in thousands of metric tons
Hoang et al. (2020) [28]	Financial performance	Measured by four different variables (ROA, ROCE, MB and PE)
	Environmental performance	Measured by three variables (GHG, WATER and WASTE)
Kanashiro (2020) [41]	Environmental performance	Total toxic emissions
Mukanjari and Sterner (2020) [42]	Carbon intensity	GHG emissions, normalized
Azar et al. (2021) [43]	CO2 emissions	Logarithm of the total GHG emissions of the firm measured in equivalents of metric tons of CO2
Chipalkatti et al. (2021) [44]	Direct investment flows (FDI)	-
Karim et al. (2021) [45]	Carbon emission disclosure	-
Khalil and Nimmanunta (2021) [46]	Tobin’s q	(Market value of equity + book value of debt—current assets)/total capital stock
	CO2 emissions	Total carbon dioxide (CO2) and CO2 equivalent emissions in tonnes/total assets
Hoang (2022) [47]	ESG disclosure	Corporate environmental, social, and governance disclosure, measured by the natural logarithm of one plus ESG disclosure score
Karagiannopoulou et al. (2022) [48]	CO2 emissions	-
Zhang and Lucey (2022) [49]	Return on asset (ROA)	Net profit over total assets
	Return on sales (ROS)	Net profit over total sales

present, respectively, an overview of the ESG input variables and the examined KPIs for each selected document. It has to be remarked that only the ESG input variables which have been used in at least 2 out of the 13 selected research documents are listed within the table; as concerns the other ones, namely, the ones that appear only in one specific document, the authors report, within the table, only the number of ESG variables being used within that document; additional information on these ESG variables can be found by the readers by further investigating the specific scientific reference.

Analysis of the documents shows that the aforementioned variables are not always precisely specified. Moreover, although in different studies the same ESG variables occur with the same name, those variables do not always coincide in terms of definition. What is even more evident, however, is that most of the variables used within the multivariate regression formulas do not occur with a significant frequency, which highlights that the procedures currently used are particularly discretionary. In this regard,

Table 7. ESG variable frequencies.

ESG Variables	Frequency of Use [%]
Firm size	61.5%
Return on asset (ROA)	46.2%
Leverage	46.2%
Board independence	30.8%
ESG score	30.8%
Board gender diversity	23.1%
Board size	23.1%
CO2 emission	23.1%
Executive compensation	15.4%
Other variables (#141)	7.7% per variable

depicts, with reference to the selected 13 papers, the frequency of the ESG variables being used to calculate the KPIs.

6.3. Research Studies Findings

This subsection summarizes, within

Table 8. Research findings for the 13 selected documents.

Reference	Findings
Haque (2017) [38]	Board independence is positively associated with the carbon performance of a firm.
	Board gender diversity is positively associated with the carbon performance of a firm.
	Multiple directorships of board members are negatively associated with the carbon performance of a firm
	ESG-based compensation policy is positively associated with the carbon performance of a firm.
Danish and Wang (2019) [39]	Governance has significant effects on CO2 emissions, leading to the environmental Kuznets curve hypothesis, and reduces CO2 emissions.
Albitar et al. (2022) [40]	Corporate environmental innovation is negatively associated with CO2 emissions.
	Environmental governance strengthens the negative relationship between environmental innovation and CO2 emissions.
Hoang et al. (2020) [28]	Improved environmental transparency among firms with green patents should lead to better financial performance (both accounting and market-based).
	Better environmental performance, meaning reductions in greenhouse gas emissions, waste generated and water use, should have positive effects on the financial performance of eco-innovative firms.
	The global financial crisis from 2007 to 2010 had a significant moderating impact on the relationship between the environmental transparency performance and financial performance of firms with green patents.
Kanashiro (2020) [41]	Firms with environmental compensation are more likely to comply with pressure to reduce pollution.
	Firms that have an environmental board committee are more likely to comply with pressures to reduce pollution.
	Firms with adoption of both an environmental board committee and environmental compensation are more likely to comply with pressures to improve environmental performance.
Mukanjari and Sterner (2020) [42]	Policymakers should promote cleaner industries and renewables and introduce ambitious climate policies, given that the evidence suggests that investors are already pricing climate change risk.
Azar et al. (2021) [43]	The Big Three (i.e., BlackRock, Vanguard, and State Street Global Advisors) can induce firms to reduce carbon emissions.
Chipalkatti et al. (2021) [44]	Direct investment flows are positively attracted by good governance.
Karim et al. (2021) [45]	There is a positive association between a firm’s capital expenditure and carbon emission disclosure in their annual report.
	There is a positive relationship between a firm’s internal governance and carbon emission disclosure.
Khalil and Nimmanunta (2021) [46]	Environmental performance (reduction in CO2) is positively related to the financial performance of firms in Asian countries.
	Conventional innovation is positively related to the financial performance of firms in Asian countries.
	Green innovation is positively related to the financial performance of firms in Asian countries.
	Conventional innovation adversely affects the environmental performance of firms in Asian countries.
	Green innovation is positively related to firms’ environmental performance in Asian countries.
Hoang (2022) [47]	Firms in more corrupt areas have lower levels of ESG disclosure than firms in other areas.
	The impact of political corruption on corporate ESG disclosure is stronger in heavy-polluter firms than in other firms.
Karagiannopoulou et al. (2022) [48]	The stock returns of companies listed on the Dow Jones Sustainability World Index exert a significant impact on global CO2 emissions in the short and long term
Zhang and Lucey (2022) [49]	ESG performance score can accurately measure CSR activities and significantly improve firm performance.
	ESG performance score can significantly improve firm performance by playing a moderating role in alleviating financial constraints.
	A high ESG performance score can significantly improve firm performance by granting firms greater access to external financing intermediation.

, the main findings of each selected research study. What emerges from the analysis is that working on ESG pillars in industry leads to carbon emission reductions as well as better company environmental and financial performance.

6.4. ESG Correlation with Carbon Emissions, Carbon Disclosure, and Firm Performance

This subsection presents the correlation between the ESG paradigm and (1) carbon emissions, (2) carbon disclosure and (3) corporate performance by examining the scientific contents of the selected research documents.

ESG and carbon emissions—Environmental innovation and greater environmental governance, according to [40], lead to a decrease in CO₂ emissions. Regardless of whether a company has a high or low ESG score, the environmental innovation score is important and inversely correlated with carbon emissions, although it is more important for companies with high ESG scores.

The existence of environmental compensation and an environmental board appear to increase the effectiveness of environmental regulatory pressures in reducing firms’ pollution emissions [43]. This result indicates that the combination of regulatory pressure and effective self-regulation through the implementation of governance mechanisms is associated with improved environmental performance [51,52,53].

Moreover, the growth of socially responsible companies, driven by the integration of environmental initiatives into their business operations, mitigates environmental degradation, and it has been observed that an increase in stock returns contributes to a decline in global CO₂ emissions (in the short run) [48]. This could be a possible consequence of all government initiatives and policymaker incentives that force companies to employ eco-friendly technologies [54], contributing to the mitigation of global CO₂ emissions. On a much broader scale, what has been found is that each aspect of governance—political stability, voice and accountability, regulatory quality, government effectiveness, control of corruption, and the rule of law—has a statistically significant impact on CO₂ emissions [39].

The evidence found in the literature underlines a close correlation between the adoption of ESG practices and carbon emissions, thus implying increasing attention from investors and policymakers with respect to the integration of the ESG paradigm. On the other hand, the need to consider non-financial parameters when assessing the sustainable performance of companies is also of paramount importance for countering the widespread phenomenon of greenwashing.

The new approach towards ESG practices in industry with a focus on carbon emissions follows a fundamental guideline, which is 360-degree innovation. Through more “human” policies, it is possible to consistently impact the sustainable performance of those “responsible” companies that will take steps to integrate ESG practices within their own entities.

ESG and carbon disclosure—Another important correlation is the one that exists between internal governance and carbon emission disclosure [45]. Indeed, a positive relationship links internal governance, capital expenditure and carbon emission disclosure, suggesting that policymakers should enhance governance standards, as they contribute to the level of carbon emission disclosure in annual reports.

Moreover, voluntary environmental disclosure among firms with green patents strongly and positively influences current financial performance, measured by return on assets (ROA) and market-to-book value ratio, even if it has been observed that environmental disclosure acts as a diminishing factor in return on capital employed (ROCE) [28]. Corporate transparency on environmental information with green patents is generally connected with tangible benefits in the areas of better accounting performance (ROA) and stock market performance (MB).

On a larger scale, improving institutional quality would encourage voluntary ESG disclosure at the firm level [47].

What emerges from the literature is that the adoption of more open disclosure policies by companies can provide an important measure of results or challenges that need to be addressed in the years ahead. Fostering transparency as part of the adoption of ESG practices is of great importance in order to create greater trust across all levels of corporate interest.

It should also not be forgotten that greater transparency can lead to greater competition in the marketplace, where, through coherent and consistent KPIs, it will be possible to evaluate all organizations according to common and validated criteria, which will ensure an increase in the commitment of all entities in order to match, if not outperform, their respective industry competitors.

ESG and firm performance—Tackling the ESG paradigm’s application in terms of firm performance means understanding the impact of innovation on firms’ financial and environmental performance. Green innovation, for example, can be seen as all those practices leading to improved environmental innovation that examine the relationship between carbon emissions and financial performance. Indeed, green innovation is a key driver, having a significant impact on firms’ financial and environmental performance: investing in green innovation reduces carbon emissions (CO₂) and improves financial performance [46].

A significant relationship also lies between ESG performance and firm performance in terms of ROA and net profit over total sales (ROS) [49]. Firms with high ESG performance scores can gain trade credit to alleviate financial constraints and improve firm performance. Corporate managers should pay attention to sustainable-growth production processes and behaviors, as firms that pay attention to sustainable growth targets, such as carbon emission reductions, will not only improve their reputation through their contribution to a cleaner world but will actually improve their financial performance.

This idea of a new metric for assessing corporate performance, as it arises from the adoption of ESG practices, is totally in line with the concept of the fourth industrial revolution (and even the ongoing fifth industrial revolution), where the major directions, in terms of policy for change, turn out to be the concepts not only of environmental sustainability, but also, especially, of human sustainability.

7. Insights and Future Perspectives

Based on the comprehensive analyses reported in the previous sections, the following important insights can be drawn:

• The European push toward the application of the ESG paradigm has been strong in recent years, through significant regulations (the Climate Benchmarks Regulation, Sustainable Finance Disclosure Regulation and Taxonomy Regulation) and other measures already planned for the future. The European community thus recognizes the global need to foster innovative transition through ESG pillars aimed at multi-capital sustainability, as do the United Nations members with the 2030 Agenda for Sustainable Development.
• Interest in the ESG paradigm is growing strongly, particularly in the last three years; there has been an exponential increase in the number of scientific publications related to this area. This interest is certainly the result of various global initiatives that are gaining momentum in the area of environmental (and social) sustainability, but also of a new awareness that is increasingly making its way into popular consciousness. However, although interest in the ESG paradigm is now almost global, only a few countries concentrate their research efforts on tackling how acting on ESG impacts carbon emission reduction. The United States currently has the highest number of papers published in the ESG area, followed by China, Australia, the United Kingdom and Italy.
• The areas which application of the ESG paradigm opens up are certainly the most diverse. However, it is evident from the analyses carried out that this paradigm is closely linked to the concept of innovation (both environmental and governance). Such innovation encompasses the need for a new approach to life, and, in regard to the world, embraces the need for a new conception of industry and production, in which the KPI that can no longer be ignored turns out to be the amount of harmful emissions released into the environment. What really makes the ESG paradigm interesting in relation to reducing CO₂ emissions is precisely this “human” approach towards such fundamental issues as diversity and inclusiveness. Concepts such as environmental sustainability and social sustainability are bound to be the future common basis of reasoning aimed at progress.
• The analyzed studies represent remarkable effort to understand a paradigm that moves in the direction of sustainable and inclusive social and environmental progress. The work that has been done lays important foundations, even though, as evidenced by the limited number of scientific documents devoted to this field, it is important that these studies be deepened and validated by new research and analysis. It is more important than ever, starting from what has already been done, to develop a consistent and transparent methodology, based on standardized inputs and outputs metrics, which can be followed step by step in order to be able to create the possibility of comparing and cross-referencing the results even across multiple sample groups.
• One of the main constraints on transparency turns out to be discretion on the release of ESG-based metrics by companies. Consistent information and data can provide future research studies with a more solid foundation in terms not only of results, but also of the creation of a community of professionals and companies committed to sustainable procedures and policies based on meaningful, verified and standard metrics.
• The important results achieved by these studies point out that environmental and governance innovation coupled with new social sustainability policies can lead to important and positive consequences in terms of impacts on carbon emissions in industry.

8. Conclusions

In this research, we carried out a literature review on the carbon emissions implications of applying the ESG paradigm in industry. This state-of-the-art overview revealed how environmental and governance innovations coupled with new social sustainability policies can lead to important and positive consequences in terms of impacts on carbon emissions in industry. The ESG paradigm is quickly gaining momentum in the new innovation concept landscape. Researchers are putting emphasis on the need for ethical business practice and green innovation that can fight the adverse effects of industrialization. This necessity has also been perceived by United Nations members, formalized in the 2030 Agenda for Sustainable Development and highlighted in several of the sustainable development goals defined in the Agenda. The analyzed studies represent remarkable effort to understand a paradigm that moves in the direction of sustainable and inclusive social and environmental progress. The work that has been done lays important foundations, even though, as evidenced by the limited number of scientific papers devoted to the industry sector, there is still a lot to do. Further scientific efforts are still needed to properly tackle and deepen the implications of the ESG paradigm for carbon emission reduction in industry. One of the main constraints on transparency turns out to be discretion around the release of ESG-based metrics by companies. Consistent information and data can provide future research studies with a more solid foundation in terms not only of results, but also of the creation of a community of professionals and companies committed to sustainable procedures and policies based on meaningful, standardized and verified metrics.