Did ESG Affect the Financial Performance of North American Fast-Moving Consumer Goods Firms in the Second Period of the Kyoto Protocol?

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

The paper deals with an interesting topic. However, this topic has already been extensively analyzed in the literature. In my opinion, the contribution the paper makes to the literature at this stage of writing is not sufficient.

 

First, it is not fully understood why the effects of the Kyoto Protocol are analyzed in countries that have not ratified that protocol. At the very least, comparing those countries with at least a couple of examples of geographical areas where the protocol has been ratified (e.g., a couple of European countries) would be necessary. The reasons for the differences between the countries that have and have not adopted the protocol should be analyzed, and experiences should be compared among the latter. Differences between the US and Canada are not mentioned in the study.

 

Second, the rationale for choosing the specific economic sector analyzed is not explained. Some qualitative reasons are given, which are not supported by adequate sources and data. The analysis of a specific sector should at least lead to finding specific implications for it. The paper does not adequately present implications for different stakeholders related to the sector. Given the particular sector being analyzed, the impact of the COVID-19 pandemic on outcomes should also be investigated. More literature on the specific sector being analyzed should also be included.

 

Since no comparison with other sectors/countries is made, it is unclear whether the results found are determined by a sector/country effect and the contribution of the different variables involved.

In general, the choices made limit the number of firms analyzed.

 

Also, the survey is limited in that it refers only to ROA and ROE indicators. If the analysis is to be kept limited to accounting indicators only, it is at least possible to extend the study to other non-profitability ratios. A robustness test with other measures of ROA (e.g., by putting operating profits - also used for growth variable - in the numerator) has not been performed either. The independent variables should also be analyzed with a time lag relative to the dependent variables.

 

To improve the interpretation of the results, other firm-related variables should also be added (e.g., distinguishing between listed and unlisted firms), and the effects should be checked more in the medium/long term. For example, the author(s) says: “ENV and SOC serve shareholders' interests in our study's findings, implying that ESG expenditures do not pay off in the short term but may pay off after a certain ESG threshold has been achieved.”: to prove this one should also look at more recent years.

 

Given the above reasons, I believe the current version of the paper is not worthy of publication.

Author Response

Review Report

Did ESG Affect the Financial Performance of North American Fast Moving Consumer Goods Firms in The Second Period of The Kyoto Protocol?

According to the reviewer’s comments, the manuscript has been reconsidered and corrected/written entirely (from beginning to end).  For this improvement, we would like to thank all reviewers for their valuable contributions.

 

Comments and Suggestions for Authors:

 

Question 1a:

First, it is not fully understood why the effects of the Kyoto Protocol are analyzed in countries that have not ratified that protocol.

Response 1a:

We would like to thank the reviewer for their valuable comment. According to this criticism, the lines 119-135 have been revised as below. We hope that the following lines fit the expectations of the reviewer.

On the other hand, another North American country, the USA, the fourth largest in the world, refused to ratify the protocol. Although they have not adopted the Kyoto Protocol, non-financial reporting by North American firms has been voluntary. Firms disclose their non-financial information primarily as ESG scores because these companies also have international sales networks. The fact that the largest North American countries have not imposed sanctions on firms and have not encouraged them due to their unratified of the Kyoto Protocol does not mean that these companies will not fulfill these obligations. It was found that the financial performance of 100 companies listed on the Bombay Stock Exchange improved when ESG disclosure and independent corporate social responsibility reports became mandatory in 2013[18] (Boodoo, 2016). This article analyzes whether non-mandatory reporting regulation in terms of ESG improves financial performance. Hence, investigating to what extent non-mandatory disclosure of ESG scores affects the financial performance of the fast-moving consumer goods industry in North America, where industrial production is high and technologically advanced countries, would be exciting and is also more critical as the industry corporations increasingly engage in sustainability activities under the influence of external pressures from stakeholders.

 

Based on this explanation, we also added the contribution of the study to literature in the lines 139-140 have been revised below. We hope that the following lines fit the expectations of the reviewer. 

In this way, we seek to understand whether regular disclosure of non-mandatory pro-ESG policies drives corporate performance to improve.

The research question was also changed in parallel with the additional explanations above. You can follow the research question in lines 152-155.

Without mandatory disclosure requirements, did pro-ESG policies, an indicator of the environmental, social, and governance efforts, affect the financial performance of fast-moving consumer goods firms in North America during the period of SCKP, which is relatively short? If yes, in what direction?

Based on the changes in the aim of the study and research question, we made some explanations and practical implications in the section of Conclusion. You can follow in lines 611-616 and 649-676.

Our study aims to answer the following research question: "Without mandatory disclosure requirements, did pro-ESG policies, an indicator of the environmental, social, and governance efforts, affect the corporate financial performance of fast-moving consumer goods firms in North America during the period of SCKP, which is relatively short? If yes, in what direction? The question of how non-mandatory sustainability reporting affects financial performance is given an outlook through our analysis.

Improving ESG activities requires costly investments and the resulting benefits are shared with society. Therefore, it cannot be expected to provide economic benefits to the company in the short term. However, sharing the ESG costs from developing standards and compliance activities with society, the government, and other stakeholders can mitigate this negative impact.

Considering the choice of population and period, the study results have important implications for policymakers, researchers, and regulators in the North American region and other developed countries. While North America continues to lag behind its European Union peers on ESG regulation, broader adoption by market participants should remain relatively strong. North America has been an attractive region for foreign investors over the past decade. Foreign firms investing in this region may require regulatory bodies to implement several essential ESG reporting standards, rules, and requirements that will significantly impact the country's investment environment. Such pressures could also lead to the emitting industries adopting clean technologies in the two major North American countries. Since North America did not already support this protocol, civil society organizations can play an important role in facing these challenges and promoting sustainable development through their multifaceted activities. During this period, they can encourage the efforts of the business world to create markets together with compliance and competition. Public institutions and professional NGOs should implement incentive policies in different areas, such as products, services, and financing, so stakeholders prefer businesses that carry out ESG activities.

Further, states should undertake essential duties and shift public resources and incentives in this direction. Environmental and social responsibility activities of corporations that are more exposed to state sanctions and rules also meet public expectations and produce results in favor of stakeholders. These implications are consistent with The 2030 Agenda for Sustainable Development Goals, adopted by all United Nations members in 2015.

 

Question 1b:

At the very least, comparing those countries with at least a couple of examples of geographical areas where the protocol has been ratified (e.g., a couple of European countries) would be necessary. The reasons for the differences between the countries that have and have not adopted the protocol should be analyzed, and experiences should be compared among the latter. Differences between the US and Canada are not mentioned in the study.

Response 1b:

We agree with the reviewer’s comment.  However, we did not make a comparison for two reasons. First, we aimed to make some implications by analyzing the impact of non-mandatory (voluntary) non-financial ESG disclosure on financial performance in a region that refused to ratify the Kyoto Protocol. The second reason stems from some basic conditions in the research data. Although most of the firms in the study are from the USA and Canada, it also includes firms from other North American countries. Conducting two separate panel data analyses for the USA and Canada (excluding other countries) will cause the N size (number of companies) to be reduced, in addition to the shortness of the time dimension, and this analysis will result in information loss. However, the point we find the reviewer's criticisms to be justified is that we did not address these reasons in the article. For this reason, we made an addition to the study as follows: (lines 477-494).

The fixed effects panel data model helps to control for unobserved differences between the USA and Canada. Unobserved heterogeneity refers to some differences between the analyzed countries that are not measured or included in the data, such as environmental policies, corporate governance traditions, or sustainability awareness of the public. In this study, a fixed effects panel data model is used to control for unchanging (fixed) characteristics specific to both countries. In addition, the effect of the factors is separated from the results of the analysis. This model allows the analysis to focus on the relationships between variables while taking into account the specific conditions of each country. In other words, this method prevents unobserved fixed effects specific to the USA and Canada from obscuring the effects of variables included in the model (e.g. ESG scores) on financial performance[78] (Lončar et al., 2019).

Lastly, the fixed effects model is fixed across countries (i.e., time (unchanging) differences are included in the model to prevent these differences from affecting the results of the analysis); thus, the impact of ESG on financial performance is analyzed more reliably. Moreover, the model we use captures natural country-level characteristics that enable the assessment of the impact of ESG without the need to model country-specific factors separately within each year, which is in line with approaches in comparative studies on policy impact [79], [80] (Buallay, 2019; Rahi et al., 2022) .

Question 2:

The paper deals with an interesting topic. However, this topic has already been extensively analyzed in the literature. In my opinion, the contribution the paper makes to the literature at this stage of writing is not sufficient.

Response 2: The contribution of the study to the literature was detailed by adding the sentence and changing the research questions as mentioned in Question 1a (lines 139-140).

In this way, we seek to understand whether regular disclosure of non-mandatory pro-ESG policies drives corporate performance to improve.

 Considering the justifications explained above and the literature gap, the research question is as follows: Without mandatory disclosure requirements, did pro-ESG policies, an indicator of the environmental, social, and governance efforts, affect the financial performance of fast-moving consumer goods firms in North America during the period of SCKP, which is relatively short? If yes, in what direction? (lines 151-158). Although many scholars have extensively studied this subject, the choice of sector, region, and period enables this research to provide new empirical evidence for the relationship between sustainability and financial performance.

 

 

 Also, we detailed the research question in the section of Conclusion to overemphasize the contribution of the study to the literature as mentioned in Question 1a.

 

Our study aims to answer the following research question: "Without mandatory disclosure requirements, did pro-ESG policies, an indicator of the environmental, social, and governance efforts, affect the corporate financial performance of fast-moving consumer goods firms in North America during the period of SCKP, which is relatively short? If yes, in what direction? The question of how non-mandatory sustainability reporting affects financial performance is given an outlook through our analysis (lines 649-676).

Question 3a:

Second, the rationale for choosing the specific economic sector analyzed is not explained. Some qualitative reasons are given, which are not supported by adequate sources and data.

Response 3a:

We agree with the reviewer’s comment.  As recommended, we added some statistical data about the FMCG industry as follows in lines 81-87

Consequently, changes in lifestyle along with the increase in the world population, the frequent launch of new products by the manufacturers and thus the increase in the industry's visibility, and compelling brand promotion by firms have been mainly driving the growth of the fast-moving consumer goods market. The global fast-moving consumer goods market is expected to reach $18,939.4 billion from 2022 to 2031, with a compound annual growth rate of 5.1% (Allied Market Research, 2022). Considering this sector's growth capacity and importance, we found it worth examining.

Question 3b:

The analysis of a specific sector should at least lead to finding specific implications for it. The paper does not adequately present implications for different stakeholders related to the sector.

Response 3b:

As suggested by the reviewer, we wrote implications for the FMCG industry in lines 677-686. Hope that the following revision fits the expectations of the reviewer.

North America has been an attractive region for foreign investors over the past decade. Foreign firms investing in this region may require regulatory bodies to implement several essential ESG reporting standards, rules, and requirements that will significantly impact the country's investment environment. Such pressures could also lead to the emitting industries adopting clean technologies in the two major North American countries. Since North America did not already support this protocol, civil society organizations can play an important role in facing these challenges and promoting sustainable development through their multifaceted activities. During this period, they can encourage the efforts of the business world to create markets together with compliance and competition. Public institutions and professional NGOs should implement incentive policies in different areas, such as products, services, and financing, so stakeholders prefer businesses that carry out ESG activities.

Further, states should undertake essential duties and shift public resources and incentives in this direction. Environmental and social responsibility activities of corporations that are more exposed to state sanctions and rules also meet public expectations and produce results in favor of stakeholders. These implications are consistent with The 2030 Agenda for Sustainable Development Goals, adopted by all United Nations members in 2015.

Considering that approximately 20 of the 113 fast-moving consumer goods firms in North America included in the study are multinationals, fully integrating sustainable policies into the management decision-making process is of critical value from a strategic perspective. Investing in ESG scores will enable firms to improve their stakeholder relations, especially since the budgets and initiatives of multinationals have a more substantial impact. If a firm continues its activities by being adopted by its stakeholders, it can gain a competitive advantage and increase its financial performance. For example, firms that invest in reducing their carbon footprint and comply with environmental regulations can differentiate themselves from their competitors and improve their financial benefits in the medium and long term.

 

Question 3c:

Given the particular sector being analyzed, the impact of the COVID-19 pandemic on outcomes should also be investigated.

Response 3c:

We thank the reviewer for his/her valuable recommendations about the impact of the COVID-19 pandemic, but we only have data from 2020 covering the pandemic. To evaluate the effect of the COVID-19 pandemic, we also need data from the following years. As we wrote in our study, data for firms after 2020 is often incomplete. Regarding the aim of the study, we evaluated how the impact of non-mandatory ESG report disclosure affects the performance of FMCG businesses in North America by taking 2013 and 2020  as the start and end dates of the Kyoto Protocol. We hope that the currently insufficient data will be completed over time due to the recent occurrence of the COVID-19 outbreak. We have written your valuable suggestion in the future studies section (lines 720-721).

Additionally, future studies can contribute to the literature by comparing the effects of ESG on financial performance before and after the COVID-19 pandemic.

 

However, since our study covers the beginning of the COVID-19 pandemic, we note as a caveat that North American economies (especially the US) implemented large fiscal and monetary stimulus considering the uncertainty of the period, which positively affected the financial performance of firms (lines 715-721).

Since the study covers the aftermath of the Global Financial Crisis and the beginning of the COVID-19 pandemic, it is essential to note that North American economies (notably the USA) implemented massive fiscal and monetary stimuli as a matter of public policy, which in turn should have positively affected firms' financial performance. Fiscal stimuli weaken implicit guarantees, leading to less credit supply[90] (Dantas et al., 2023) incentivizing firms to go to equity markets to finance their projects. Given the monetary stimuli, the cost of equity is lower; thus, ROE improves.

 

Question 3d:

More literature on the specific sector being analyzed should also be included.

Response 3d:

We found two studies in the literature that were slightly similar to our study and added them to the literature in lines 144-151. Hope that the revised form of the study meets the reviewer’s expectations.

 

Becher studied the corporate social responsibility – corporate financial performance relationship of multinational firms only in the fast-moving consumer goods industry and found a positive impact of corporate social responsibility on corporate financial performance in 2005-2020 [19]. A similar study was conducted on the consumer staples industry, which fell within the fast-moving consumer goods industry in 2005-2018 (Monsen and Heggen, 2020). They also concluded that ESG performance positively influences short- and long-term financial performance.

Question 4:

Since no comparison with other sectors/countries is made, it is unclear whether the results found are determined by a sector/country effect and the contribution of the different variables involved.

In general, the choices made limit the number of firms analyzed.

Response 4:

While we agree with the reviewer’s criticism, we  state our purpose in the study as follows:

Pooling two developed North American countries provides a distinct opportunity to observe how firms in a non-ratifying region respond to global ESG trends in terms of financial performance without binding government sanctions. This approach highlights the extent to which market and stakeholder pressures influence firms’ ESG adoption, unlike the policy-based compliance that exists in Europe and other Kyoto-ratifying countries. In the study, We made recommendations for future studies in parallel to reviewers’ suggestions as seen below (lines 713-716). We thank the reviewer for his/her valuable recommendations.

Future studies could contribute to the literature by comparing the North American fast-moving consumer goods industry to those in other regions, for instance, Western Europe that ratified SCKP with its 28-member states and made ESG mandatory by implementing the "comply or explain" principle (lines 159-168).

According to the reviewer's criticisms, we added the following paragraph to the manuscript.

The pooled analysis of North American firms is designed to capture commonalities and divergences in ESG impact under the unique conditions of non-ratification of the Kyoto Protocol. While the largest North American countries, USA and Canada, opted out of the SCKP, regulatory and market differences shape how firms from each country approach sustainability. For example, Canada’s previous commitment to the first Kyoto period (2008-2012) led to the implementation of various environmental policies and corporate expectations, establishing foundational regulatory frameworks that continued to influence corporate governance practices[21] (Naeem and Çankaya, 2022. Conversely, the USA, with no ratification history, relied more heavily on voluntary initiatives and state-level mandates, resulting in a different landscape of corporate and market expectations for ESG performance[22] (Rahi et al., 2022).

 

Question 5:

Also, the survey is limited in that it refers only to ROA and ROE indicators. If the analysis is to be kept limited to accounting indicators only, it is at least possible to extend the study to other non-profitability ratios.

Response 5:

For the empirical analysis, we deliberately selected accounting-based measures rather than market-based measures, as the accounting data is audited, and therefore, more reliable (Velte, 2017; Rahi et al, 2022 ). However, we also used operating income and total assets growth as control variables(Zhou et al., 2023). If the sample in the study as a whole were publicly traded companies, we would have included market-based indicators. The critical reason we used a limited number of variables was to have complete access to data from all companies. We had to limit the type of data to ensure that the number of firms included in the study wouldn’t be low. We would like to thank the reviewer for allowing us to explain this issue.

Question 6:

A robustness test with other measures of ROA (e.g., by putting operating profits - also used for growth variable - in the numerator) has not been performed either. The independent variables should also be analyzed with a time lag relative to the dependent variables.

Response 6:

A robustness test with other measures of ROA (e.g., by putting operating profits - also used for growth variable - in the numerator:

The ROA measure used in the study is a standard indicator that reflects the profitability of firms using their assets. This measure is a performance indicator accepted in many literatures investigating the relationship between ESG and financial performance (e.g., Aydoğmuş et al., 2022; Naeem and Çankaya, 2022). Alternative ROA definitions (e.g., ROA calculated over operating profit or adjusted ROA) may generally be more appropriate in specific sectors or firms with different financial structures. However, the current ROA measure used for the analysis of the fast-moving consumer goods industry has high validity across the sector and provides consistency with previous literature.

In addition, fixed effects panel data analysis was used to control for fixed effects across countries or firms, which increases the reliability of the analysis. Nevertheless, evaluating alternative ROA measures in future studies may be useful to verify the robustness of the model.

Analyzing Independent Variables with a Time Lag:

The impact of ESG activities on financial performance may not be observed immediately; Therefore, it is recommended to perform an analysis with a time lag. This means that the effects of ESG scores may only be reflected in financial performance after several periods. However, this study evaluates the effects of ESG variables on financial performance in the current period using fixed effects panel data analysis. In addition to current period analyses, lagged analyses are also common in the literature (e.g., Naeem et al., 2022; Zhou et al., 2023). This is an approach consistent with the method used and provides valid results.

Nevertheless, in future studies, the use of lagged models (e.g., ESG scores lagged by one or two periods) may be appropriate to examine the longer-term effects of ESG activities. Since the findings of this study aimed to examine the effects of current-period ESG activities on financial performance, the analysis used is consistent with the literature.

Question 7:

To improve the interpretation of the results, other firm-related variables should also be added (e.g., distinguishing between listed and unlisted firms), and the effects should be checked more in the medium/long term. For example, the author(s) says: “ENV and SOC serve shareholders' interests in our study's findings, implying that ESG expenditures do not pay off in the short term but may pay off after a certain ESG threshold has been achieved.”: to prove this one should also look at more recent years.

Response 7:

Thanks so much for the reviewer’s attention.  After reading it again, we decided to correct it. We only focused on the result in the short term, we removed the comment that was based on a possible finding that was not obtained by analysis. The revised form is as follows:

Further, ENV and SOC serve shareholders' interests in our study's findings, implying that ESG expenditures do not pay off in the short term.

 

Author Response File: Author Response.docx

Reviewer 2 Report

Comments and Suggestions for Authors

Please refer to the attached document for my comments. I urge the authors to incorporate all the points I raised in detail, in order to improve the scholarly quality of their work.

Comments for author File: Comments.pdf

Author Response

 

 

 

 

 

 

 

 

 

 

Review Report

Did ESG Affect the Financial Performance of North American Fast Moving Consumer Goods Firms in The Second Period of The Kyoto Protocol?

According to the reviewer’s comments, the manuscript has been reconsidered and corrected/written entirely (from beginning to end).  For this improvement, we would like to thank all reviewers for their valuable contributions.

 

Comments and Suggestions for Authors:

Question 1: Overall exposition. This is an editorial comment, but I am raising it first since it relates to the readability of the paper. The present version of the manuscript is too heavy on abbreviations and acronyms. Abbreviations are helpful when a concept is novel (in which case, the authors first introduce the abbreviation and then use it throughout the paper) or when it relates to a well-known construct. For example, terms like ESG and GDP can be used throughout the paper because they are part of the knowledge domain of most scholars and policymakers. However, the authors do not need to introduce an abbreviation for “Corporate Financial Performance”—just refer to it as “corporate financial performance, rather than “CFP.” Moreover, the authors don’t need an abbreviation for “North American” (NAn) (any minimally informed person knows what “North American” stands for). The excessive use of abbreviations makes the paper very hard to read, so I encourage the authors to only use them when strictly necessary. To illustrate my point, imagine a reader who is unfamiliar with the present work but proficient in corporate finance and/or ESG topics. How would that reader react to a statement such as the following hypothesis: “ESG has a positive and significant impact on the CFP of FMCG firms in NA.” Now compare it with an alternative version: “ESG has a positive impact on the financial performance of fast-moving consumption-goods firms in North America.” It stands to reason that the latter is clearer. In addition to removing unnecessary abbreviations, the authors should be concise in their writing. It is not necessary to say “corporate” in “corporate financial performance” when the sentence makes it clear that the financial performance in question relates to firms.

Response 1: We certainly agree with the reviewer, we used such abbreviations in order not to exceed the limited number of words. As recommended, the manuscript has been corrected entirely (from beginning to end), such as NAn was corrected as  North American, and financial performance was used instead of CFP. FMCG and CG were changed to fast-moving consumer goods, and corporate governance, respectively. FP was also corrected as financial performance. Hope that these corrections meet the reviewer’s expectations. We thank the reviewer for his/her valuable recommendations. 

Question 2: Related to the paper’s hypothesis, I do not understand the rationale for stating them in a directional form (even less with a positive sign). There are important policy debates about ESG having an unclear (or even potentially value-destroying) effect on firm value (Edmans, 2023). Given that there are reasonable arguments for both directions, it is more reasonable to state hypotheses in null form and take an agnostic stance, letting the data speak for itself.

 

Response 2: We would like to thank the reviewer for their valuable comment. According to this criticism, we rewrote the hypotheses without a sign. Hope we got it right (lines 339-346).

H1: ESG has a significant impact on the corporate financial performance of fast-moving consumer goods firms in North America

H2: ENV has a significant impact on the corporate financial performance of fast-moving consumer goods firms in North America

H3: SOC has a significant impact on the corporate financial performance of fast-moving consumer goods firms in North America

H4: GOV has a significant impact on the corporate financial performance of fast-moving consumer goods firms in North America

 

Question 3a:

ESG institutional investors. One important aspect that the paper neglects is the effect of ESG institutional investors driving capital flows to firms with high ESG scores. To wit, the assets under management by ESG funds increased exponentially over the past decades, as documented by Dantas (2021). In this case, it can be the case that the positive effect on firm performance is not directly due to ESG activities, but to capital flows from ESG investors. In other words, the authors currently interpret their findings of firms with high ESG scores being more profitable as if ESG itself positively affect firms’ profitability. The alternative view is that firms with high ESG scores were the ones that attracted more capital flows from ESG investors (Dantas, 2021). This is a critically important point and should be discussed as such. While I cannot see how one could disentangle the two effects, the authors should at the very least add a section in the paper titled “caveats” wherein they discuss this alternative interpretation in light of the findings of Dantas (2021).

Response 3a: As recommended, we added the section “Caveats” which discussed the results in light of the findings of Dantas(2021). You can follow it in lines 704-716.

Some Caveats Related to the Findings

 

In this section, we address some alternative interpretations of the findings from the study. From a managerial perspective, in North America, non-mandatory ESG disclosure during this period led to higher financial performance due to greater firm trust in external stakeholders. Could the increase in ESG scores of the multinational companies included in the study (Procter & Gamble, Unilever, Coca-Cola, Kellogg’s, Metro, Pepsico, Herbalife, etc.) over the years, thus attracting more institutionalized foreign investors, have increased financial performance? Dantas suggested that the source of the positive impact on firm performance is not ESG activities but rather capital flows from institutional investors due to the attraction of a high ESG score[86] ( Dantas, 2021). Although this is not the purpose of this article, it could be a topic for future research. This article found that non-mandatory reporting disclosure without public sanction would improve financial performance, especially within the corporate governance framework.

 

Question 3b:

Implicit guarantees and bank credit. In addition to the role of ESG investors, since the period comprises the aftermath of the Global Financial Crisis and the COVID–19 pandemic, it is important to note that North American economies (notably the US) was engaging in massive fiscal and monetary stimuli, which in turn should have positively affected firms’ financial performance. Fiscal stimuli weaken implicit guarantees, which in turn leads to less credit supply (Dantas et al., 2023). This is a point that should also be included as a caveat: weaker government guarantees lead to banks’ shrinking credit (Dantas et al., 2023), which in turn create incentives for firms to go to equity markets to finance their projects. Given the monetary stimuli, the cost of equity capital is lower and stock prices can appreciate regardless of reported ROEs.

Response 3b:

As recommended, we discussed the results in the section “Some Caveats Related to the Findings” You can follow it in lines 717-723.

 

Since the study covers the aftermath of the Global Financial Crisis and the beginning of the COVID-19 pandemic, it is essential to note that North American economies (notably the USA) implemented massive fiscal and monetary stimuli as a matter of public policy, which in turn should have positively affected firms' financial performance. Fiscal stimuli weaken implicit guarantees, leading to less credit supply[87] (Dantas, 2023) incentivizing firms to go to equity markets to finance their projects. Given the monetary stimuli, the cost of equity is lower; thus, ROE improves.

 

Question 3c:

Policy uncertainty. The last factor that the authors should discuss as a caveat is the role of policy uncertainty (Campello and Kankanhalli, 2024). Uncertainty affects corporate financial performance through its real options value and depletion of reversible capital investments (Campello and Kankanhalli, 2024). Given that the sample includes major events such as the Brexit referendum (which had important spillovers for North American firms Campello et al., 2022) and the onset of the COVID–19 pandemic, it is possible that firm performance and ESG investments are moving together due to uncertainty and increasing popularity of ESG moving together during the period.

Response 3c:

As recommended, we discussed the “policy uncertainty effect” in the section “Some Caveats Related to the Findings” You can follow it in lines 724-730.

 

The last factor to be discussed as a caveat is the role of policy uncertainty [88] (Campello and Kankanhalli, 2024). Uncertainty affects corporate financial performance through reversible equity investments' real option value and exhaustion [88] (Campello and Kankanhalli, 2024). Given that the study included significant events such as the Brexit referendum (which had essential spillover effects for North American firms)[89] (Campello et al., 2022)  and the onset of the COVID-19 pandemic, it may be possible that firm performance and ESG investments moved together due to uncertainty and the increasing popularity of ESG during the period.

 

 

Question 4:

Fixed effects. Throughout the paper, the authors state that they compare fixed-effects and random-effects models. However, they do not inform what fixed effects are included in the models. Do the fixed-effects models comprise both time and firm fixed effects? The authors should be more precise when describing their analyses.

Response 4:

We would like to thank the reviewer for their valuable comment, The explanation is as follows:  

Since a single period (8 years) was considered in the econometric analyses, it was assumed that systematic variables specific to years had no significant effect. Time-fixed effects were not added to the model. In other words, only firm (unit) fixed effects were included in the study's results, and time-fixed effects were not included.

The relevant section of the article was edited as follows (lines 481-482):

Since it was assumed that systematic variables specific to years did not have a significant effect, only firm (unit) fixed effects were included in the results.

 

 

 

 

 

 

 

 

 

 

 

 

Author Response File: Author Response.docx

Reviewer 3 Report

Comments and Suggestions for Authors

The authors have presented a classic "desk" research study, based on existing raw data from an open database (the Bloomberg ESG Rating). The research topic is undoubtedly relevant, but I would recommend the authors to further specify it, moving away from vague formulations such as "to create a positive and constructive synergy for a sustainable world".

As a strength of the work, I note the aforementioned use of ready-made raw data. This article is a good example of how one can take a fresh look at information from open sources, without spending additional resources on data collection.

Overall, I recommend accepting this paper, after addressing the minor comments as follows:

P. 3 line 111: the phrase that "the USA never signed the protocol" is inaccurate, as the USA did sign, but refused to ratify the protocol.

P. 4 line 163: there seems to be a citation system artifact [NO_PRINTED_FORM].

P.4 lines 185-186: at first glance, the phrase "many studies argue that the impact of ESG on financial performance is negative" appears to contradict the subsequently proposed hypothesis H1 ("ESG has a positive and significant impact on the CFP /…/"), which, according to your own words, is based on studies of the impact of ESG on financial performance. Please clarify this point.

P. 6 line 281: typo "Langeland ve Ugland".

Author Response

Review Report

Did ESG Affect the Financial Performance of North American Fast Moving Consumer Goods Firms in The Second Period of The Kyoto Protocol?

According to the reviewer’s comments, the manuscript has been reconsidered and corrected/written entirely (from beginning to end).  For this improvement, we would like to thank all reviewers for their valuable contributions.

 

 

Comments and Suggestions for Authors:

As a strength of the work, I note the aforementioned use of ready-made raw data. This article is a good example of how one can take a fresh look at information from open sources, without spending additional resources on data collection.

Overall, I recommend accepting this paper, after addressing the minor comments as follows:

Question 1: The authors have presented a classic "desk" research study, based on existing raw data from an open database (the Bloomberg ESG Rating). The research topic is undoubtedly relevant, but I would recommend the authors to further specify it, moving away from vague formulations such as "to create a positive and constructive synergy for a sustainable world".

Response 1: After reading again, we agree with the reviewer’s comment. Thanks for your notice.  We removed this sentence from the abstract.

Question 2:

1. 3 line 111: the phrase that "the USA never signed the protocol" is inaccurate, as the USA did sign, but refused to ratify the protocol.

Response 2: Thanks so much for the reviewer’s attention.  We made a mistake unintentionally and corrected it as follows:

On the other hand, another North American country, the USA, the fourth largest in the world, refused to ratify the protocol.

Question 3:

1. 4 line 163: there seems to be a citation system artifact [NO_PRINTED_FORM].

Response 3:

Thanks for your kind notice. It was missing, we corrected it.

Question 4:

P.4 lines 185-186: at first glance, the phrase "many studies argue that the impact of ESG on financial performance is negative" appears to contradict the subsequently proposed hypothesis H1 ("ESG has a positive and significant impact on the CFP /…/"), which, according to your own words, is based on studies of the impact of ESG on financial performance. Please clarify this point.

Response 4:

As noticed, we reviewed it again and with your and the other reviewers warning, we rewrote the hypotheses without signs. We thank the reviewer for his/her valuable recommendations.

Hypotheses are as follows (lines 333-341):

H1: ESG has a significant impact on the corporate financial performance of fast-moving consumer goods firms in North America

H2: ENV has a significant impact on the corporate financial performance of fast-moving consumer goods firms in North America

H3: SOC has a significant impact on the corporate financial performance of fast-moving consumer goods firms in North America

H4: GOV has a significant impact on the corporate financial performance of fast-moving consumer goods firms in North America

 

Question 5:

1. 6 line 281: typo "Langeland ve Ugland".

Response 5:

 

Thanks for your kind notice. We corrected it.

 

 Langeland and Ugland for companies in Nordic,

 

 

Author Response File: Author Response.docx

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

The paper is now ready for publication, according to my opinion

Reviewer 2 Report

Comments and Suggestions for Authors

I thank the authors for successfully addressing all the comments I raised. The paper reads much better and I have no further reservations with the exposition.