Abstract: During the last decade sustainable investment practices have evolved substantially. ESG reporting is moving seamlessly from voluntary to mandatory. By investing in companies that score high in ESG rankings, investors hope for the organisation's resilience to the crisis and higher returns. Due to the dynamic development of socially responsible investing both in Poland and worldwide, new indices using ESG screening criteria are being designed, which in turn are the underlying instrument for structured products. The aim of the study was to analyse the constituents of the newly created WIG-ESG index and to discuss its performance and organisational resilience in relation to ESG risk exposure and management. The research showed that the criteria for inclusion in the WIG-ESG index should be amended to recognise companies that care about strong ESG risk management and exclude those with negligible ESG efforts. The second important issue is eligibility for inclusion. If all companies are eligible to be included in the index (ESG testing as a condition for inclusion), this will reduce the rotation of the index's constituents and allow the relationship between a company's ESG score after each update and its long-term performance to be explored.
<a href="https://dx.doi.org/10.15611/fins.2023.1.02">DOI: 10.15611/fins.2023.1.02</a>
<p>JEL Classification: Q01, G32, D53, M14</p>
<p>Keywords: ESG risk ratings, organisationalresilience, sustainable investing, ESG equity indices, WIG-ESG</p>
<h2>1. Introduction </h2>
<p>The precursor to ESG was CSR (Corporate Social Responsibility).
Although the terms ESG and CSR are related and even sometimes used
interchangeably, they have their own specific purposes and
characteristics. “While CSR aims to make a business accountable, ESG
criteria make such business’ efforts measurable” (Lexology, 2021).
According to Bloomberg Intelligence, it is estimated that global ESG
assets may surpass $41 trillion by 2022 and $50 trillion by 2025
(Bloomberg, 2022). Entering the term ESG into the Scopus database, it
can be noticed that there has been an increase in interest in this topic
in recent years. The number of publications in 2021 is almost triple
compared to 2018 (613 and 169, respectively). Already in the middle of
2022 there are 483 publications in the database – which confirms the
growing trend.</p>
<p>The literature review revealed that researchers are particularly
interested in studying the impact of implementing ESG criteria on the
financial performance and market value of listed companies (Fafalilou et
al., 2022; Folger-Laronde et al., 2020Khan, 2022; Torre, 2020;).
Research confirms that ESG performance generally has a positive impact
on returns, but this varies by company. Investing in ESG yielded higher
returns for a specific group of companies, particularly those operating
in the energy and utilities sectors where ESG exposure is relatively
high (La Torre et al., 2020, p. 10). ESG reputational risks amplify
capital constraints (difficulty in obtaining external financing), reduce
firms’ growth opportunities and has a negative and statistically
significant impact on the longevity of firms in the market (Fafalilou et
al., 2022, p. 13). The bibliometric research on scientific articles
relating to ESG in the banking industry conducted by Galetta et al.
(2022, p. 9) revealed that researchers focused on CSR and the social
dimension of ESG. The keyword co-occurrence network analysis shows that
the term ‘ESG’ is not present among the top ten keywords. The most
frequently occurring keywords are CSR, sustainability and corporate
governance.</p>
<p>Companies are increasingly disclosing ESG-related information as both
EU and national regulations force them to do so and stakeholders
increasingly demand more information. Investors are keen to know the
financial materiality of ESG issues before making investment decisions,
as socially responsible investing is deeply rooted in the financial
logic of profit maximisation (Madison and Schiehll, 2021, p. 19). In
2018, Polish companies were required to disclose such information for
the first time as a result of EU Directive 2014/95/EU on Non-Financial
Reporting (NFRD) and the amendment of the domestic Accounting Act. These
extended reporting obligations covered the largest WSE entities, those
with either more than 500 employees or net revenues exceeding PLN 170
million per year. Currently, only large Polish listed companies are
required to publish ESG data in their non-financial reports, but soon
medium-sized and smaller entities will also have to pay more attention
to this aspect.</p>
<p>The above is influenced by the EU taxonomy regulation, which
establishes a clear framework for the concept of sustainability,
defining precisely when a company is operating in a sustainable or
environmentally friendly manner. Regulation (EU) 2020/852 on the
establishment of a framework to facilitate sustainable investment
(Taxonomy Regulation) was supplemented by Commission Delegated
Regulation (EU) 2021/2139 and Commission Delegated Regulation (EU) EU
2021/2178, which in turn were amended by Commission Delegated Regulation
(EU) 2022/1214 of 9 March 2022. This “EU Taxonomy Climate Complementary
Delegated Act” applies from 1 January 2023 and extends the EU Taxonomy
Framework by recognising fossil gas and nuclear energy activities as
environmentally sustainable economic activities that can contribute to
the decarbonisation of the EU economy.</p>
<p>Additionally, in January 2023, the provisions of the Corporate
Sustainability Reporting Directive (CSRD) entered into force. The
directive updates and strengthens the rules on social and environmental
information that companies are obliged to report. Information should be
reported in accordance with the European Sustainability Reporting
Standards (ESRS). The first set of standards is expected to be adopted
by the Commission in 2023, based on a draft published by EFRAG in
November 2022. The CSRD also makes it mandatory for companies to audit
the sustainability information they report. New rules should be applied
by all large and listed EU companies (except micro enterprises) in 2024
for reports published in 2025. Small listed companies will have more
time to prepare to meet the directive's requirements, publishing their
first report for 2026 (GrantThornton, 2022). According to the European
Parliament press release, the number of entities covered by the CSRD is
expected to be four times larger in comparison to NFRD (2022).</p>
<p>The purpose of the study was to analyse the components of the WIG-ESG
index recently launched by the Warsaw Stock Exchange. The article
attempts to answer the question of whether it is justified to include
all large companies in an ESG index, regardless of whether and to what
extent they operate in accordance with ESG guidelines.</p>
<h3>1.1. From the RESPECT
Index to the WIG-ESG index</h3>
<p>The RESPECT Index was the first index of responsible companies in
Central and Eastern Europe. It included companies that were most
compliant with corporate governance, information governance and investor
relations requirements, and above all with ESG factor requirements.
Initially the index comprised 16 companies and was reviewed once every
six months. Companies representing one of the three stock market indices
(WIG20, mWIG40, sWIG80) were eligible to apply for inclusion. The
assessment of companies' corporate governance practices was carried out
by the Warsaw Stock Exchange in cooperation with the Polish Association
of Listed Companies, while the assessment of companies' maturity in
terms of social responsibility (ESG factors) was carried out by Deloitte
on the basis of questionnaires completed by companies. Over the years,
the questionnaire of the survey completed by the companies has evolved.
In the first edition the survey contained 58 questions, which were
divided into three categories: CSR policy – 22 questions, Economic – 12,
Environmental – 24. In 2013, the number of questions decreased to 48 and
the name of the three question categories were changed to ESG
(Environmental – 14 questions, Social – 18, Governance – 16). For the
first three years, only domestic companies could participate in the
index and for the following years also foreign companies. Returns on the
index after five years on the market were impressive, reaching over 70%,
when the return on the WIG (WSE all-share index) was around 30%. As
Ceglinski (2015, p. 243) noted, such high returns were the result of
spectacular increases in the value of the shares of the two index
constituents: KGHM (Diversified metals) and PKN Orlen (Refiners &
Pipelines), in the first year after the launch of RESPECT. Adopting
Ceglinski's assumptions, the 9-year performance of the index was
analysed against other indices, setting the base date at 11 August 2011
(Figure 1). The analysis showed that investment in RESPECT was not more
profitable than investment in WIG, mWIG40 or sWIG80. However, higher
returns were recorded compared to the WIG20 index, as the shares of the
largest companies in the index are limited to 10% when the index has
more than 20 participants.</p>
<p>
<img src="/articles/2023/Zaremba OST/media/image3.png" />
</p>
<p><strong>Fig. 1.</strong> Comparison of returns from RESPECT, WIG,
WIG20, mWIG40 and sWIG80 (11.08.2011-31.12.2019)</p>
<p>Source: own elaboration using software available at
https://www.money.pl/analytics/ (15.06.2022).</p>
<p><strong>Table 1.</strong> Composition of the RESPECT index throughout
its presence on the market</p>
<table class="table table-bordered">
<colgroup>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
</colgroup>
<thead>
<tr><th>No</th>
<th>Company name</th>
<th>RESPECT index revisions (2010-2018)</th>
<th>WIGESG</th>
</tr>
<tr><th>1</th>
<th>2</th>
<th>3</th>
<th>4</th>
<th>5</th>
<th>6</th>
<th>7</th>
<th>8</th>
<th>9</th>
<th>10</th>
<th>11</th>
<th>12</th>
</tr>
</thead>
<tr><td>1</td>
<td>Apator SA</td>
<td>×</td>
<td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>2</td>
<td>Bank BPH SA</td>
<td>×</td>
<td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>
</td><td>
</td><td>
</td><td>D</td>
</tr>
<tr><td>3</td>
<td>Barlinek SA</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>D</td>
</tr>
<tr><td>4</td>
<td>Bank Handlowy SA</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>5</td>
<td>Bank Millennium SA</td>
<td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>6</td>
<td>Elektrobudowa SA</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>B</td>
</tr>
<tr><td>7</td>
<td>Ciech SA</td>
<td>×</td>
<td>
</td><td>
</td><td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
</tr>
<tr><td>8</td>
<td>Grupa Lotos SA</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>9</td>
<td>Żywiec SA</td>
<td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td></tr>
<tr><td>10</td>
<td>ING Bank Śląski SA</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>11</td>
<td>KGHM Polska Miedź SA</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>12</td>
<td>Mondi Świecie SA</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>D</td>
</tr>
<tr><td>13</td>
<td>PGNiG SA</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>14</td>
<td>PKN Orlen SA</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>
</td><td>×</td>
<td>×</td>
</tr>
<tr><td>15</td>
<td>Orange Polska SA (TP SA)</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>16</td>
<td>Grupa Azoty SA (Zakłady Azotowe)</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>17</td>
<td>ZM "Ropczyce" SA</td>
<td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td></tr>
<tr><td>18</td>
<td>mBank SA (BRE Bank)</td>
<td>
</td><td>×</td>
<td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>19</td>
<td>Budimex SA</td>
<td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>20</td>
<td>Santander BP SA (Kredyt Bank)</td>
<td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>21</td>
<td>LW Bogdanka SA</td>
<td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>22</td>
<td>DM IDM SA</td>
<td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td></tr>
<tr><td>23</td>
<td>Fabryka Farb i Lak. Śnieżka SA</td>
<td>
</td><td>
</td><td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td></tr>
<tr><td>24</td>
<td>Netia SA</td>
<td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>D</td>
</tr>
<tr><td>25</td>
<td>PBG SA</td>
<td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>R</td>
</tr>
<tr><td>26</td>
<td>PGE SA</td>
<td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>27</td>
<td>PZU SA</td>
<td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>28</td>
<td>ZEW Kogeneracja SA</td>
<td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>29</td>
<td>JSW SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>30</td>
<td>Pelion SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>
</td><td>
</td><td>D</td>
</tr>
<tr><td>31</td>
<td>GPW SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>32</td>
<td>RAFAKO SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td></tr>
<tr><td>33</td>
<td>TAURON PE SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>34</td>
<td>ENERGA S.A.</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
<td>D</td>
</tr>
<tr><td>35</td>
<td>RAWLPLUG SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td></tr>
<tr><td>36</td>
<td>Bank Ochrony Środowiska</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>
</td><td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>37</td>
<td>Fabryki Mebli Forte SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>38</td>
<td>PCC Rokita SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>39</td>
<td>Bank Pekao SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>40</td>
<td>Trakcja PRKiI SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>41</td>
<td>Agora SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>42</td>
<td>Inter Cars SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
<td>×</td>
</tr>
<tr><td>43</td>
<td>Amrest Holding SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
</tr>
<tr><td>44</td>
<td>CCC SA</td>
<td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>
</td><td>×</td>
<td>×</td>
</tr>
<tr><td> </td>
<td><strong>Total</strong></td>
<td><strong>16</strong></td>
<td><strong>16</strong></td>
<td><strong>22</strong></td>
<td><strong>23</strong></td>
<td><strong>20</strong></td>
<td><strong>20</strong></td>
<td><strong>23</strong></td>
<td><strong>26</strong></td>
<td><strong>23</strong></td>
<td><p><strong>2</strong></p>
<p><strong>5</strong></p></td>
<td><p><strong>2</strong></p>
<p><strong>8</strong></p></td>
<td><p><strong>3</strong></p>
<p><strong>1</strong></p></td>
<td><strong>23</strong></td>
</tr>
</table>
<ul><li><p>(B) Bankruptcy proceedings, (D) Delisted, R (Restructuring
proceedings)</p></li>
</ul>
<ul><li><p>WIG-ESG constituents</p></li>
</ul>
<p><img src="/articles/2023/Zaremba OST/media/image4.png" />ESG well-managed but not included in the
WIG-ESG index (sWIG80 constituents)</p>
<p>Source: own elaboration based on (<a href="http://respectindex.pl/">http://respectindex.pl/</a>;
19.05.2022).</p>
<p>The RESPECT Index has existed in the market for ten years and the
number of participants has doubled during this period from initially 16
to 31 (see Table 1). Only eight companies were part of the index during
its entire existence; some companies such as PKN Orlen, Apator,
Santander BP SA, Bank Ochrony Środowiska, were not included in single
periods. The dynamic growth of the index participantoccurred in the last
three years of its existence. Due to the rapidly developing market of
socially responsible investing, the RESPECT Index was replaced by the
WIG-ESG index in January 2020. As a result, the 23 constituents of the
RESPECT Index became a component of the WIG-ESG. It is worth mentioning
that seven companies with good ESG risk management (long-term components
of the RESPECT Index), i.e. Apator, ZEW Kogeneracja, Bank Ochrony
Środowiska, Fabryka Mebli Forte, Trakcja PRKiI, PCC Rokita, were not
included in the WIG-ESG index, as they are not components of the WIG20
or mWIG40. Three of the above-mentioned companies could contribute to
the increase in the value of the WIG-ESG index, i.e. PCC Rokita (+80%)<a href="#fn1">1</a>, Fabryka Mebli Forte (+9%), Bank
Ochrony Środowiska (+20%), one neutral – Trakcja SA (+0.12%) while the
remaining three were characterised by share price declines, i.e: Agora
(-42%), Apator (-29%), ZEW Kogeneracja (-16%). The main differences in
the methodology of the two indices are shown in Table 2.</p>
<p><strong>Table 2.</strong> Comparison of the RESPECT and WIG-ESG
indices</p>
<table class="table table-bordered">
<colgroup>
<col></col>
<col></col>
<col></col>
</colgroup>
<thead>
<tr><th><strong>Area</strong></th>
<th><strong>RESPECT Index</strong></th>
<th><strong>WIG-ESG</strong></th>
</tr>
</thead>
<tr><td><strong>Publication date</strong></td>
<td>November 19, 2009</td>
<td>September 3, 2019</td>
</tr>
<tr><td><strong>Companies evaluation criteria</strong></td>
<td>Companies with highest liquidity (WIG20, mWIG40, sWIG80) managed in
a sustainable manner. The three-step assessment is made on the basis of
questionnaires completed by companies and available public
information.</td>
<td>All companies included in WIG20 (twenty largest companies) and
mWIG40 (40 mid-cap companies listed on the Warsaw Stock Exchange).
<strong>No exclusions related to sector specificity or low ESG
rating.</strong></td>
</tr>
<tr><td><strong>Companies' weights in the index</strong></td>
<td>Depend on number of free float shares. The weights of the largest
companies being capped at 25% when the number of constituents is less
than 20, or at 10% otherwise.</td>
<td>Depend on number of free float shares adjusted by the results of the
ESG ranking provided by Sustainalytics and compliance with corporate
governance principles contained in the WSE Best Practices for WSE-listed
Companies.</td>
</tr>
<tr><td><strong>Index base value</strong></td>
<td>1000</td>
<td>10000</td>
</tr>
<tr><td><strong>Products</strong></td>
<td>No products</td>
<td>NN Responsible Investment Index FIO Fund</td>
</tr>
</table>
<p>Source: own elaboration based on (respectindex.pl;
www.gpwbenchmark.pl; 15.06.2020).</p>
<p>The WIG-ESG index is an income index (both transaction prices and
dividend income are taken into account). The share of one company in the
index is limited to 10%, while the total share of companies, each of
which exceeds 5%, is limited to 40% (WSE, 2022). As the WiG-ESG index
comprises all the largest companies with the highest liquidity listed on
the WSE (WIG20) and 40 medium-sized companies (mWIG40), the portfolio is
strongly diversified. There are also some limitations in the
construction of the above-mentioned price indices, e.g. no more than
five companies from one stock exchange sector may participate in the
WIG20 index, and the number of free float shares for both indices must
be greater than 10% (free float not less than EUR 1 million). It should
be noted that the composition of these indices may change after each
quarterly adjustment resulting in a change to the composition of the
WIG-ESG index.</p>
<p><strong>Table 3.</strong> Composition of the WIG-ESG index: overview
of companies in terms of ESG performance</p>
<table class="table table-bordered">
<colgroup>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
</colgroup>
<thead>
<tr><th>Lp.</th>
<th>Instrument</th>
<th>Free float (%)</th>
<th>ESG Risk Rating</th>
<th>Risk exposure</th>
<th>Risk management</th>
<th>Last update</th>
<th>Industry</th>
</tr>
</thead>
<tr><td><strong>1</strong></td>
<td>LPP</td>
<td>54.3</td>
<td>13.9</td>
<td>Low</td>
<td>Average</td>
<td>Mar 8, 2022</td>
<td>Retailing</td>
</tr>
<tr><td><strong>2</strong></td>
<td>CCC</td>
<td>52.8</td>
<td>13.9</td>
<td>Low</td>
<td>Strong</td>
<td>May 20, 2022</td>
<td>Textiles & Apparel</td>
</tr>
<tr><td><strong>3</strong></td>
<td>CDPROJEKT</td>
<td>70.1</td>
<td>14.1</td>
<td>Low</td>
<td>Average</td>
<td>Mar 30, 2022</td>
<td>Software & Services</td>
</tr>
<tr><td><strong>4</strong></td>
<td>MBANK</td>
<td>30.8</td>
<td>14.8</td>
<td>Medium</td>
<td>Strong</td>
<td>May 2, 2022</td>
<td>Banks</td>
</tr>
<tr><td><strong>5</strong></td>
<td>GPW</td>
<td>65.0</td>
<td>14.8</td>
<td>Low</td>
<td>Average</td>
<td>Aug 3, 2021</td>
<td>Divers. Financials</td>
</tr>
<tr><td><strong>6</strong></td>
<td>NEUCA</td>
<td>41.9</td>
<td>17.1</td>
<td>Low</td>
<td>Average</td>
<td>Mar 9, 2022</td>
<td>Healthcare</td>
</tr>
<tr><td><strong>7</strong></td>
<td>PEPCO</td>
<td>21.1</td>
<td>17.5</td>
<td>Low</td>
<td>Average</td>
<td>Jan 25, 2022</td>
<td>Retailing</td>
</tr>
<tr><td><strong>8</strong></td>
<td>PZU</td>
<td>60.0</td>
<td>18.6</td>
<td>Medium</td>
<td>Strong</td>
<td>Feb 11, 2022</td>
<td>Insurance</td>
</tr>
<tr><td><strong>9</strong></td>
<td>CYFRPLSAT</td>
<td>31.5</td>
<td>20.4</td>
<td>Low</td>
<td>Average</td>
<td>Jan 24, 2022</td>
<td>Media</td>
</tr>
<tr><td><strong>10</strong></td>
<td>PKOBP</td>
<td>54.5</td>
<td>20.7</td>
<td>Medium</td>
<td>Strong</td>
<td>Jan 24, 2022</td>
<td>Banks</td>
</tr>
<tr><td><strong>11</strong></td>
<td>LIVECHAT</td>
<td>36.5</td>
<td>21.1</td>
<td>Low</td>
<td>Weak</td>
<td>Dec 24, 2021</td>
<td>Software & Services</td>
</tr>
<tr><td><strong>12</strong></td>
<td>TSGAMES</td>
<td>52.8</td>
<td>21.8</td>
<td>Low</td>
<td>Weak</td>
<td>Jul 30, 2021</td>
<td>Software & Services</td>
</tr>
<tr><td><strong>13</strong></td>
<td>SANPL</td>
<td>27.3</td>
<td>22.3</td>
<td>Medium</td>
<td>Average</td>
<td>Dec 17, 2021</td>
<td>Banks</td>
</tr>
<tr><td><strong>14</strong></td>
<td>ALLEGRO</td>
<td>39.7</td>
<td>22.5</td>
<td>Low</td>
<td>Average</td>
<td>Oct 7, 2021</td>
<td>Software & Services</td>
</tr>
<tr><td><strong>15</strong></td>
<td>INGBSK</td>
<td>16.4</td>
<td>22.5</td>
<td>Medium</td>
<td>Strong</td>
<td>May 16, 2022</td>
<td>Banks</td>
</tr>
<tr><td><strong>16</strong></td>
<td>HUUUGE</td>
<td>45.2</td>
<td>23.0</td>
<td>Low</td>
<td>Weak</td>
<td>Sep 9, 2021</td>
<td>Software & Services</td>
</tr>
<tr><td><strong>17</strong></td>
<td>PLAYWAY</td>
<td>18.2</td>
<td>23.6</td>
<td>Low</td>
<td>Weak</td>
<td>Jul 30, 2021</td>
<td>Software & Services</td>
</tr>
<tr><td><strong>18</strong></td>
<td>ORANGEPL</td>
<td>38.8</td>
<td>23.9</td>
<td>Medium</td>
<td>Average</td>
<td>Dec 17, 2021</td>
<td>Telecommunication</td>
</tr>
<tr><td><strong>19</strong></td>
<td>HANDLOWY</td>
<td>25.0</td>
<td>24.2</td>
<td>Medium</td>
<td>Average</td>
<td>Jul 3, 2021</td>
<td>Banks</td>
</tr>
<tr><td><strong>20</strong></td>
<td>PKNORLEN</td>
<td>58.5</td>
<td>25.0</td>
<td>Medium</td>
<td>Strong</td>
<td>Dec 27, 2021</td>
<td>Refiners & Pipelines</td>
</tr>
<tr><td><strong>21</strong></td>
<td>EUROCASH</td>
<td>56.4</td>
<td>25.4</td>
<td>Medium</td>
<td>Average</td>
<td>Mar 9, 2022</td>
<td>Food Retailers</td>
</tr>
<tr><td><strong>22</strong></td>
<td>DINOPL</td>
<td>49.0</td>
<td>25.8</td>
<td>Medium</td>
<td>Average</td>
<td>May 24, 2022</td>
<td>Food Retailers</td>
</tr>
<tr><td><strong>23</strong></td>
<td>KRUK</td>
<td>52.8</td>
<td>25.9</td>
<td>Low</td>
<td>Average</td>
<td>May 18, 2022</td>
<td>Divers. Financials</td>
</tr>
<tr><td><strong>24</strong></td>
<td>PEKAO</td>
<td>55.7</td>
<td>26.9</td>
<td>Medium</td>
<td>Average</td>
<td>May 27, 2022</td>
<td>Banks</td>
</tr>
<tr><td><strong>25</strong></td>
<td>LOTOS</td>
<td>40.5</td>
<td>27.0</td>
<td>Medium</td>
<td>Strong</td>
<td>Jul 3, 2021</td>
<td>Refiners & Pipelines</td>
</tr>
<tr><td><strong>26</strong></td>
<td>ASSECOPOL</td>
<td>49.8</td>
<td>27.3</td>
<td>Low</td>
<td>Weak</td>
<td>Feb 25, 2021</td>
<td>Software & Services</td>
</tr>
<tr><td><strong>27</strong></td>
<td>MILLENNIUM</td>
<td>28.3</td>
<td>27.4</td>
<td>Medium</td>
<td>Average</td>
<td>Jun 18, 2021</td>
<td>Banks</td>
</tr>
<tr><td><strong>28</strong></td>
<td>AMREST</td>
<td>27.5</td>
<td>28.3</td>
<td>Medium</td>
<td>Average</td>
<td>Nov 8, 2021</td>
<td>Consumer Services</td>
</tr>
<tr><td><strong>29</strong></td>
<td>XTB</td>
<td>33.0</td>
<td>29.1</td>
<td>Medium</td>
<td>Average</td>
<td>May 24, 2022</td>
<td>Divers. Financials</td>
</tr>
<tr><td><strong>30</strong></td>
<td>KETY</td>
<td>43.9</td>
<td>30.6</td>
<td>Medium</td>
<td>Average</td>
<td>Dec 22, 2021</td>
<td>Diversified Metals</td>
</tr>
<tr><td><strong>31</strong></td>
<td>BOGDANKA</td>
<td>35.0</td>
<td>32.7</td>
<td>Medium</td>
<td>Average</td>
<td>Apr 14, 2021</td>
<td>Oil & Gas Producers</td>
</tr>
<tr><td><strong>32</strong></td>
<td>BUDIMEX</td>
<td>30.6</td>
<td>34.7</td>
<td>Medium</td>
<td>Average</td>
<td>Dec 13, 2021</td>
<td>Construction & Eng.</td>
</tr>
<tr><td><strong>33</strong></td>
<td>CIECH</td>
<td>35.6</td>
<td>35.0</td>
<td>Medium</td>
<td>Average</td>
<td>Jan 7, 2022</td>
<td>Chemicals</td>
</tr>
<tr><td><strong>34</strong></td>
<td>KGHM</td>
<td>55.6</td>
<td>36.4</td>
<td>High</td>
<td>Average</td>
<td>Nov 12, 2021</td>
<td>Diversified Metals</td>
</tr>
<tr><td><strong>35</strong></td>
<td>ALIOR</td>
<td>51.4</td>
<td>37.6</td>
<td>Medium</td>
<td>Average</td>
<td>Nov 11, 2021</td>
<td>Banks</td>
</tr>
<tr><td><strong>36</strong></td>
<td>MERCATOR</td>
<td>36.5</td>
<td>40.1</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Medical Instruments</td>
</tr>
<tr><td><strong>37</strong></td>
<td>KERNEL</td>
<td>55.7</td>
<td>40.4</td>
<td>High</td>
<td>Average</td>
<td>May 9, 2022</td>
<td>Food Products</td>
</tr>
<tr><td><strong>38</strong></td>
<td>JSW</td>
<td>44.8</td>
<td>40.6</td>
<td>High</td>
<td>Average</td>
<td>May 11, 2022</td>
<td>Diversified Metals</td>
</tr>
<tr><td><strong>39</strong></td>
<td>PGNIG</td>
<td>28.1</td>
<td>42.3</td>
<td>High</td>
<td>Average</td>
<td>May 21, 2022</td>
<td>Oil & Gas Producers</td>
</tr>
<tr><td><strong>40</strong></td>
<td>CLNPHARMA</td>
<td>41.2</td>
<td>42.3</td>
<td>Medium</td>
<td>Weak</td>
<td>Sep 6, 2021</td>
<td>Pharmaceuticals</td>
</tr>
<tr><td><strong>41</strong></td>
<td>TAURONPE</td>
<td>53.9</td>
<td>45.2</td>
<td>High</td>
<td>Average</td>
<td>Jan 24, 2022</td>
<td>Utilities</td>
</tr>
<tr><td><strong>42</strong></td>
<td>ENEA</td>
<td>47.7</td>
<td>47.3</td>
<td>High</td>
<td>Average</td>
<td>Jul 30, 2021</td>
<td>Utilities</td>
</tr>
<tr><td><strong>43</strong></td>
<td>PGE</td>
<td>39.1</td>
<td>49.0</td>
<td>High</td>
<td>Average</td>
<td>May 28, 2022</td>
<td>Utilities</td>
</tr>
<tr><td><strong>44</strong></td>
<td>GRUPAAZOTY</td>
<td>32.4</td>
<td>52.7</td>
<td>High</td>
<td>Average</td>
<td>Nov 27, 2021</td>
<td>Chemicals</td>
</tr>
<tr><td><strong>45</strong></td>
<td>INTERCARS</td>
<td>37.4</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Auto parts</td>
</tr>
<tr><td><strong>46</strong></td>
<td>WIRTUALNA</td>
<td>51.9</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Software & Services</td>
</tr>
<tr><td><strong>47</strong></td>
<td>PEP</td>
<td>6.3</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Utilities</td>
</tr>
<tr><td><strong>48</strong></td>
<td>11BIT</td>
<td>74.2</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Electronic Gaming</td>
</tr>
<tr><td><strong>49</strong></td>
<td>COMARCH</td>
<td>44.2</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Inform. Technology</td>
</tr>
<tr><td><strong>50</strong></td>
<td>ASSECOSEE</td>
<td>30.6</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Software & Services</td>
</tr>
<tr><td><strong>51</strong></td>
<td>DEVELIA</td>
<td>34.6</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Real estate services</td>
</tr>
<tr><td><strong>52</strong></td>
<td>DOMDEV</td>
<td>26.4</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Real estate services</td>
</tr>
<tr><td><strong>53</strong></td>
<td>MOBRUK</td>
<td>51.2</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Waste Management</td>
</tr>
<tr><td><strong>54</strong></td>
<td>FAMUR</td>
<td>29.8</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Sp. Ind. Machinery</td>
</tr>
<tr><td><strong>55</strong></td>
<td>BENEFIT</td>
<td>27.4</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Leisure</td>
</tr>
<tr><td><strong>56</strong></td>
<td>SELVITA</td>
<td>57.0</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Diagn.s & Research</td>
</tr>
<tr><td><strong>57</strong></td>
<td>ASBIS</td>
<td>63.2</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Electronics</td>
</tr>
<tr><td><strong>58</strong></td>
<td>DATAWALK</td>
<td>58.2</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Software & Services</td>
</tr>
<tr><td><strong>59</strong></td>
<td>PKPCARGO</td>
<td>46.9</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Logistic</td>
</tr>
<tr><td><strong>60</strong></td>
<td>MABION</td>
<td>55.9</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>Biotechnology</td>
</tr>
</table>
<p>Source: own elaboration based on data from WSE Benchmark, Stooq and
Sustainalytics (24.06.2022).</p>
<p>From the launch of the WIG-ESG index until the last revision
conducted in March 2022, as many as 15 companies have been replaced in
the index portfolio, i.e. Communications SA, Orbis SA, Getin Noble Bank
SA, Boryszew, CI Games S.A., Forte SA, Stalprodukt SA, Getin Holding SA,
Biomed Lublin SA, Amica SA, BNP Paribas Bank Polska SA, VRG SA, Echo
Investment SA, GTC SA, Energa SA. The first two companies have been
delisted, while the majority of the remaining companies currently belong
to the sWIG80 index portfolio, which includes 80 small companies listed
on the WSE. After each revision of the composition of the indices, a
reserve list of five companies is created. This list is important
because companies that change their status from small to medium and are
added to the sWIG40 index portfolio are subject to ESG risk assessment.
Proper preparation and transparency in ESG risk management will result
in stronger ESG scoring and may help attract investors making
sustainable choices. Moreover, according to Olszewska (2019), an
appointed WSE Management Board Member, small companies may also be
included in the WIG-ESG index in the future. The initial inclusion in
the WIG-ISG index of the largest and most liquid companies was intended
to attract the top foreign investors who invest huge assets in
sustainably managed companies.</p>
<p>The weighting of WIG-ESG constituents is based on free-float shares
adjusted for ESG ratings provided by Sustainalytics, and an assessment
of compliance with GPW’s corporate governance principles. One third of
WIG-ESG index constituents have more than 50% of their shares in free
float. Only 5% of companies have less than 20% of shares in public
trading, including one company – Polenergia SA, which has a ratio below
10% and therefore does not meet the base criterion required to be in the
sWIG40 index. Although there are more than 600 ESG ratings published
worldwide, investors treat both Sustainalytics and MSCI ratings as
valuable (SustainAbility, 2020). Sustainalytics' ESG risk assessments
are designed to help investors identify and understand the financially
material ESG risks in their investment portfolio and how these risks may
impact performance. The Sustainalytics database contains nearly 150,000
entities from around the world assigned to one of 138 sub-industry
classifications, for which a team of analysts selected ten material ISG
issues (MEIs). The ESG risk assessment takes into account the issuer's
exposure to industry-specific ESG risks and the extent to which these
risks are managed. The highest rating scores are given to companies with
the highest exposure to ESG risk and the weakest management in this
area. The final exposure assessment also includes firm-specific
adjustments. It should be noted that companies may be exposed to
manageable ESG risk and unmanageable risk, the proportion of which is
defined at the subindustry level (e.g. mining companies cannot fully
eliminate its environmental impact through policies or programmes).
According to ESG Risk Rating methodology, the assigned to company score
is the sum of unmanageable risk score and unmanaged manageable risk
score. In summary, the fewer unmanageable ESG risks a company faces and
the better the company manages these manageable risks, the lower the
score and the better the company's ranking.</p>
<p>The companies currently included in the WIG-ESG index represent the
following sectors: Software & Services (9), Banks (8), Diversified
Financials (6), Utilities (4) Food retailers and food products (3),
Chemicals (2), Construction & Engineering (2), Oil & Gas (2),
Pharmaceuticals (2), Real Estate Services (2), Refiners & Pipelines
(2), Retailing (2), Telecommunication Services (1), Textiles &
Apparel (1), Consumer Services (1), Healthcare (1), Insurance (1), Auto
Components (1), Web portals (1), Games (1), Recreation and leisure (1),
Mechanical equipment (1), Transportation (1), Biotechnology (1),
Recycling (1), Medical equipment (1), Computers and electronics (1),
Media (1). The weights of the companies in the WIG-ESG are dependent on
the number of shares in free float (liquidity as a main criterion),
adjusted by the ESG Risk Rating and finally adjusted by the assessment
of compliance with the Best Practice for GPW Listed Companies 2016. None
of the companies were eliminated with this approach (e.g. due to the
type of business activity).</p>
<p>The study covered all 60 companies included in the WIG-ESG index but
data were only available for 43 of them (Table 2). The missing data can
be partly explained by the fact that some of the companies have been
included in the mWIG40 index in recent years. The lack of ESG Risk
Rating also applies to companies that have been part of the WIG-ESG
index since its launch, which may be due to the analytical team's work
on updating the scoring. Sustainalytics identify five categories of ESG
risk severity that could impact a company’s enterprise value, namely:
negligible (score below 10), low (10-20), medium (20-30), high (30-40)
and severe (score over 40). There is no company in the WIG-ESG index for
which the risk would be defined as negligible. Only 8 out of 44
companies have a low ESG risk rating. These are companies whose exposure
to ESG factors is also low, or companies with medium exposure but strong
management of ESG issues. For almost half of the companies (21), the ESG
risk index is in the range 20-30 (medium), while 15 companies have an
ESG Risk Rating of high (6 companies) or serious (9 companies). The
companies that have a high rating are mostly characterised by an average
exposure to ESG risks and also an average level of management. Companies
in the severe risk group typically have high exposure to ESG risks and a
medium level of management. The index includes only one company (CCC SA)
that, despite its low exposure to ESG risks, is distinguished by its
strong management. Very high ESG scoring concerned companies whose
exposure to ESG risks was high while the degree of governance was mostly
medium. The following three companies are the largest generators,
distributors and sellers of electricity in Poland: ENEA, TAURON Polska
Energia and PGE. The highest ESG rating was achieved by Grupa Azoty –
the EU's number two manufacturer of nitrogen and compound fertilizers.
In the group of companies representing the chemical industry
(Sustainalytics), the company reached 456th place out of 462 companies.
Kernel Holding (a Ukrainian company based in Luxemburg) is the world's
leading and Ukraine's largest producer and exporter of sunflower oil.
Companies such as KGHM (world leader in mining and smelting and leading
producer of copper and refined silver) Celon Pharma (producer of modern
medicines), PGNiG (exploration and production of natural gas and crude
oil) and JSW (largest producer of high quality hard coking coal) should
also pay attention to improving the area of ESG risk management.
Companies putting great effort into ESG risk management include the oil
and energy conglomerate PKN Orlen and the fuel company Lotos, which was
merged with PKN Orlen on 1 August 2022. Companies striving at better ESG
risk management include the largest footwear manufacturer CCC, three
banks: PKO Bank Polski, mBank and ING Bank Śląski, the insurance company
PZU, the fuel and energy conglomerate PKN Orlen and the fuel company
Lotos, which was merged with PKN Orlen on 1 August 2022. According to
Khan (2022, p. 16), ESG risk is influenced by market capitalisation.
Larger firms have usually maintained higher ESG performance due to
higher social pressure.</p>
<p>In conclusion, it should be noted that large and medium-sized
companies are automatically included in the index, regardless of their
ESG risk management efforts. On the one hand, according to the index
creators, if only ESG risk exposure was taken into account, mining
companies would not have to do anything, as they would have no chance of
being included in the index anyway (Olszewska, 2019). On the other hand,
global practice in the construction of ESG indices is different.</p>
<h2>2. ESG indices in European
stock markets</h2>
<p>As of June 2022, the largest stock exchange in Europe was Euronext,
formed twenty two years ago by merging the stock exchanges of Paris,
Brussels, and Amsterdam. In 2002, Euronext merged with the Portuguese
stock exchange and the London International Financial Futures Exchange,
while in 2018 it completed the acquisition of the Irish Stock Exchange
to create Euronext Dublin and in 2021 the Italian stock exchange to
create Euronext Milan. Euronext is also one of the leading index
providers in Europe, with over 900 indices of all profiles, including
over 100 ESG indices (Euronext.com, 15.05.2022). The ESG assessment is
provided by different partners such as Vigeo Eiris (part of Moody’s ESG
Solutions), Sustainalytics, Institutional Shareholder Services, and as
Erhart (2022, p. 9) pointed out, the choice of ESG data provider has a
large impact on the overall ESG assessment of a stock as the ratings of
different rating agencies are often not directly comparable. Dimson et
al. (2020) stated that ESG ratings, used in isolation, are unlikely to
make a material contribution to portfolio returns. Correlation between
ESG ratings from alternative agencies is minimal. An explanation of why
the assessments of different evaluators differ was undertaken by, among
others, Dimson et al. (2020), and Kotsantonis & Serafeim (2019). As
the authors pointed out, the factors causing discrepancies in rankings
relate to: estimation of missing metrics, benchmark choice or weighting
scheme for ESG scores. Sustainalytics tends to give roughly equal weight
to each of the three ESG pillars compared to the MSCI data provider,
which gives 5% weight to the environment, 74% to society and 21% to
governance.</p>
<p>Table 3. ESG indices in largest European stock exchanges</p>
<table class="table table-bordered">
<colgroup>
<col></col>
<col></col>
<col></col>
<col></col>
</colgroup>
<thead>
<tr><th>Index name</th>
<th>Date of launch</th>
<th>Index Description</th>
<th>
</th></tr>
</thead>
<tr><td>Euronext Group</td>
<td>
</td></tr>
<tr><td><strong>Eurozone ESG Large 80</strong></td>
<td><p>7.04.2020</p>
<p>Euronext Paris</p></td>
<td>80 Eurozone Large Cap companies selected for their higher score in
energy transition and ESG performance. <strong>ESG assessment:</strong>
Vigeo-Eiris (Moody’s). <strong>Exclusion criteria:</strong> 20% lowest
ranking companies in social and 20% in governance assessment, sin
stocks*</td>
<td>
</td></tr>
<tr><td><strong>CAC 40 ESG</strong></td>
<td><p>22.03.2021</p>
<p>Euronext Paris</p></td>
<td>40 companies within the CAC Large 60 Index that demonstrate the best
ESG practices excluding sin stocks. <strong>ESG assessment:</strong>
Vigeo Eiris.</td>
<td>
</td></tr>
<tr><td><strong>MIB® ESG</strong></td>
<td><p>18.10.2021</p>
<p>Borsa Italiana</p></td>
<td>40 companies based on best ESG criteria out of the 60 most liquid
Italian companies excluding sin stocks. <strong>ESG assessment:</strong>
Vigeo Eiris.</td>
<td>
</td></tr>
<tr><td><strong>OBX® ESG</strong></td>
<td><p>6.05.2022</p>
<p>Oslo Børs</p></td>
<td>40 best scoring companies on ESG Risk rating out of the 60 largest
companies listed on Oslo Børs. <strong>ESG assessment:</strong>
Sustainalytics.</td>
<td>
</td></tr>
<tr><td><strong>AEX® ESG</strong></td>
<td><p>12.05.2022</p>
<p>Euronext Amsterdam</p></td>
<td>25 best scoring companies on ESG Risk rating out of 50 companies
that make up of the AEX® and AMX® indices.<strong>ESG assessment:</strong> Sustainalytics (Morningstar).</td>
<td>
</td></tr>
<tr><td>Nasdaq Nordic (Nasdaq OMX Group)</td>
<td>
</td></tr>
<tr><td><strong>OMX Stockholm 30 ESG Resp. Index</strong></td>
<td><p>July 9, 2018</p>
<p>Nasdaq Stockholm</p></td>
<td>Index includes 28 constituents out of 30 most traded stocks as of
July 2022. <strong>ESG assessment:</strong> ISS Ethixs (Institutional
Shareholder Services).</td>
<td>
</td></tr>
<tr><td><strong>OMX Copenhagen 25 ESG Resp. Index</strong></td>
<td><p>June 22, 2022</p>
<p>Nasdaq Copenhagen</p></td>
<td>25 most traded ESG compliant securities out of all 128 companies
listed on Nasdaq Copenhagen. <strong>Exclusion criteria:</strong>
Sustainalytics Controversy Rating of five, Non-compliance with the
principles of the United Nations Global Compact, sin stocks. <strong>ESG
assessment:</strong> Sustainalytics.</td>
<td>
</td></tr>
<tr><td><strong>OMX Helsinki 25 ESG Resp. Index</strong></td>
<td><p>22.06.2022</p>
<p>Nasdaq Helsinki</p></td>
<td>25 most traded ESG compliant securities out of all 141 companies
listed on Nasdaq Helsinki. Exclusion criteria are the same as OMX
Copenhagen 25 ESG. <strong>ESG assessment:</strong> Sustainalytics.</td>
<td>
</td></tr>
<tr><td>Six Group</td>
<td>
</td></tr>
<tr><td><strong>SPI ESG</strong></td>
<td><p>1.02.2021</p>
<p>Six Swiss Exchange</p></td>
<td>The index consists of those (currently 131) components of the Swiss
Performance Index (SPI) that have a rating of at least C+ on a scale of
A+ to D– and less than 5% turnover in “controversial” sectors (sin
stocks). <strong>ESG assessment:</strong> Inrate (Swiss sustainability
rating agency).</td>
<td>
</td></tr>
<tr><td><strong>FTSE4Good IBEX Index</strong></td>
<td><p>April 9, 2008</p>
<p>Bolsa de Madrid</p></td>
<td>The index comprises companies in the BME’s IBEX 35 Index
and the FTSE Spain All Cap Index that demonstrate good ESG ratings.
<strong>Inclusion</strong>: free float (above 5%), ESG rating of 3.1 out
of 5. Sin stocks excluded. Current number of components 25. <strong>ESG
assessment:</strong> FTSE Russell</td>
</tr>
<tr><td>Deutsche Börse</td>
</tr>
<tr><td><strong>EURO STOXX 50® ESG Index</strong></td>
<td><p>May 2019</p>
<p>Börse Frankfurt</p></td>
<td>The methodology was significantly updated in April 2021.
The index excludes the least sustainable companies as well as sin stocks
from the benchmark EURO STOXX 50 Index. <strong>ESG assessment:</strong>
Sustainalytics.</td>
</tr>
<tr><td><strong>DAX® 50 ESG</strong></td>
<td><p>March 4, 2020</p>
<p>Börse Frankfurt</p></td>
<td>Includes 50 largest, most liquid German market stocks
and is based on all equities that belong to either the DAX®, MDAX® or
TecDAX® indices. <strong>ESG assessment:</strong> Sustainalytics.</td>
</tr>
<tr><td>LSE Group: FTSE Russell Environmental Social and
Governance indices</td>
</tr>
<tr><td><strong>FTSE4Good Europe</strong></td>
<td><p>30.07.2001</p>
<p>London Stock Exchange</p></td>
<td>Number of constituents 402 out of 588 (Index universe:
FTSE Developed Europe). Inclusion: ESG Rating of 3.3 for developed
markets and 2.9 for emerging markets. Sin stocks excluded. <strong>ESG
assessment:</strong> FTSE Russell</td>
</tr>
<tr><td><strong>FTSE4Good United Kingdom</strong></td>
<td><p>30.07.2001</p>
<p>London Stock Exchange</p></td>
<td><p>Number of constituents 222 out of 600 (Index
universe: FTSE All-share index). Constituent selection the same as
FTSE4Good Europe.</p>
<p><strong>ESG assessment:</strong> FTSE Russell</p></td>
</tr>
<tr><td>Morgan Stanley Capital International indices</td>
</tr>
<tr><td><strong>MSCI Europe ESG Leaders Index</strong></td>
<td>1.10.2007</td>
<td>Consists of large and mid-cap companies in 15 developed*
markets countries. Number of constituents 208 out of 429 eligible (MSCI
Europe). Inclusion: companies with the highest ESG ratings representing
50% of the market cap in each sector and region of the parent Index,
MSCI ESG Rating of 'BB' or above and the MSCI ESG Controversies Score of
at least 3. Sin stocks excluded. <strong>ESG assessment:</strong>
MSCI</td>
</tr>
</table>
<p>* Companies involved in activities that are considered unethical
(alcohol, tobacco, gambling, adult entertainment and weapons).</p>
<p>Source: own elaboration based on information from stock exchange
websites.</p>
<p>Euronext’s first national ESG index derived from the CAC 40® index
family was launched in March 2021. Half a year later, in October 2021,
Euronext announced the launch of the first Italian blue-chip ESG index -
MIB® ESG. In May 2022, Euronext launched a new OBX® ESG, and few days
later, AEX® ESG indices which identifies 40 blue-chip companies listed
in Norway and 25 companies that demonstrate the best ESG practices from
the 50 constituents of the AEX® and AMX® indices. All of the
abovementioned indices incorporate norm-based exclusion filters applied
in accordance with the UN Global Compact Principles and activity
exclusions (tobacco production, thermal coal mining, controversial
weapons, civilian firearms, tar sand and oil shale extraction).
Companies with active critical controversies related to UNGC as
determined by Vigeo-Eiris are not eligible for the index (Euronext,
30.06.2022).</p>
<p>The second largest exchange in Europe by domestic market
capitalisation is the London Stock Exchange (Statista, 15.07.2022). ESG
Ratings FTSE Russell has been at the forefront of innovation in ESG
indexing, since the creation of the FTSE4Good Index Series in 2001, one
of the world’s first global ESG index families. In order to be included
in the FTSE4Good Index Series companies must have an overall ESG Rating
of 3.3 (developed markets) or 2.9 (emerging markets) out of 5. Companies
with exposure to “significant controversies” are not eligible for
addition to the Index Series (manufacturers of tobacco, coal, weapons
systems). Companies are removed from the index series when the ESG score
is lower than 2.9 or 2.4, respectively (FTSE Russel, 15.07.2022). The
third largest exchange in Europe is the SIX Swiss Exchange. On 1
February 2021, Six Swiss launched its first ESG Equity Index and ESG
Bond Index, which are based on the Swiss Performance Index
(Switzerland's general stock market index) and the Swiss Bond Index
(tracks fixed-rate and investment-grade obligations issued in Swiss
francs), respectively. Index inclusion criteria are as follows: ESG
Impact Rating of at least C+ (Inrate ranking), company must not generate
more than 5 percent of its sales in a critical sector (adult
entertainment, alcohol, armaments, betting, genetic engineering, nuclear
energy, coal, oil sands, and tobacco). Moreover, the company must not be
on the exclusion list of the Swiss Association for Responsible
Investments (Six, 2022). Two other major stock exchanges in Europe with
similar market capitalisation are Deutsche Börse and OMX Nordic
Exchanges, which refers to Nasdaq Nordic. The Deutsche Börse Group
supplies well over 10,000 indices including the STOXX® and DAX® index
families. In May 2019, EURO STOXX 50® ESG Index was introduced by
Qontigo, a part of Deutsche Börse Group. The index is based on the EURO
STOXX 50® Index, one of Europe's flagship benchmarks. A year later,
Qontigo created the DAX® 50 ESG index, the universe of which is defined
by all the stocks included in the HDAX (the German stock market index,
which consists of 110 components of indices such as the DAX, MDAX and
TecDAX). The methodology for calculating both indices is similar and
includes ESG score screening and business type exclusions. Nasdaq Nordic
operates the exchanges in the Nordic market (Sweden, Denmark, Finland
and Iceland) and the Baltic market (Estonia, Latvia, Lithuania). The
first ESG-responsible version of the OMX Stockholm 30 Index was launched
on the Nasdaq Stockholm exchange in 2018. The OMX Stockholm 30 ESG
Responsible Index is based on the OMXS30 Index, which consists of the 30
most actively traded stocks on the Stockholm Stock Exchange. Securities
that fail to meet the criteria during the systematic criteria-based ESG
screening, were excluded. The name of the index due to the underlying
instrument indicates that it contains 30 companies, but its content is
variable - securities that do not pass a systematic criteria-based ESG
screening are excluded. In June 2022, two additional ESG indices were
launched - on the Helsinki and Copenhagen Stock Exchanges. The OMX
Copenhagen 25 ESG Responsible Index (OMXC25ESG) consists of a selection
of securities from the OMX All-Share Index, where 25 securities are
selected for index inclusion using an ordered ranking-based selection
process (Nasdaq 1, 14.06.2022). In turn, the OMX Helsinki 25 ESG
Responsible Index (OMXH25ESG) is based on OMX Helsinki All-Share Index.
Companies that are not eligible for inclusion are characterised by a
Sustainalytics Controversy Rating of five, involvement of certain
degrees in gambling, military contracting, oil & gas, adult
entertainment, alcoholic beverages, recreational cannabis, controversial
weapons, and small arms, thermal coal and tobacco products (Nasdaq 2,
14.06.2022).</p>
<p>In summary, stock exchanges around the world are currently
introducing indices that bring together best-in-class companies in terms
of meeting ESG criteria. Often, the methodology of pre-existing SRI
indices is also modified to take ESG ratings into account when selecting
companies for the index (e.g. STOXX® Europe 600 SRI, FTSE4Good series,
OMX GES Sustainability Nordic Index etc.). In most cases, the criterion
for including companies in ESG indices is the so-called positive
screening, i.e. the process of selecting companies on the basis of their
best ESG performance and their non-association with so-called critical
sectors. ESG indices are often based on constituents of all-stock
indices or indices covering the most liquid stocks.</p>
<h2>3. ESG efforts and
enterprise resilience </h2>
<p>In times of market crisis, investors look for evidence of companies'
resilience. The concept of resilience has often been discussed as an
important strategy for success as well as survival in today's highly
unpredictable business environment. Gallopin (2006) discribed enterprise
resilience as the ability of a company to cope with, adapt to and
recover from disruption. Sabatino (2016) proposed a list determinants
that define a company as resilient and able to cope with economic and
social shocks, such as: product and focalization, quickness in the
decision; organizing structure based on the clan model; strong national
imprinting–business values; customer centricity; an efficient system of
incentives for strategic aims. According to Weber et al. (2010), a
company’s engagement in sustainable activities increases its
creditworthiness. Empirical research conducted by Srivastava et al.
(2022), revealed that increased engagement in CSR activities enable
companies to access debt capital during the COVID-19-induced crisis.
Cheema-Fox et al. (2021, p. 32) investigating companies' resilience and
response to the COVID-19 pandemic, indicated that a two-standard
deviation increase in the ESG rating by MSCI was associated with about
1.2% higher stock returns (by contrast, the ESG rating from
Sustainalytics was not significant). A positive correlation between ESG
metric performance and financial performance of companies was also
suggested by Wong et al. (2021), who revealed that on average a firm’s
cost of capital is reduced by 1.2%, while Tobin’s Q increases by 31.9%
upon receiving an ESG rating. Good ESG performance results in lower
costs of capital and higher valuations (Giese et al., 2019).</p>
<p>The WIG-ESG constituents with available ESG score (excluding banks)
were subject to analysis. Trends in indebtedness, profit generation and
share price change in 2019-2020 were verified. As shown in Table 4, the
majority of companies (22 out of 35) were characterised by debt levels
above 50% in 2019 and the situation did not change significantly in the
next year (number increased to 23). In addition, an increase in debt
levels was also recorded for 22 companies. Allegro, Huuuge and Pepco
were listed for a short time (debut date 10.2020, 2.2021, 5.2021).
Analysing only interest-bearing debt (loans and borrowings, lease
obligations, bonds), the number of companies with a total debt ratio
above 50% was only 5 in 2019, and 4 in 2020. Only 34% of companies
increased the level of interest-bearing liabilities in 2020. The number
of companies that ended 2020 with a net loss increased by only four,
compared to 2019. Despite the pandemic, half of the companies analysed
(18 out of 35) improved their return on sales in 2020 compared to the
previous year.</p>
<p>Table 4. Debt levels of WIG-ESG components in 2019 and 2020 versus
sales and market returns</p>
<table class="table table-bordered">
<colgroup>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
<col></col>
</colgroup>
<thead>
<tr><th><strong>Lp.</strong></th>
<th><strong>Company</strong></th>
<th><strong>ESG Rating</strong></th>
<th><strong>DR</strong></th>
<th><strong>DR mod*</strong></th>
<th><strong>ROS</strong></th>
<th><strong>Share % change**</strong></th>
</tr>
<tr><th><strong>2019</strong></th>
<th><strong>2020</strong></th>
<th><strong>2019</strong></th>
<th><strong>2020</strong></th>
<th><strong>2019</strong></th>
<th><strong>2020</strong></th>
<th><strong>2019</strong></th>
<th><strong>2020</strong></th>
</tr>
</thead>
<tr><td>1</td>
<td>LPP</td>
<td>13.9</td>
<td>66.2</td>
<td>70.4</td>
<td>36.7</td>
<td>37.6</td>
<td>4.3</td>
<td>-2.4</td>
<td>12.4</td>
<td>-6.1</td>
</tr>
<tr><td>2</td>
<td>CCC</td>
<td>13.9</td>
<td>86.5</td>
<td>97.3</td>
<td>50.4</td>
<td>53.2</td>
<td>-0.5</td>
<td>-22.7</td>
<td>-43.1</td>
<td>-20.4</td>
</tr>
<tr><td>3</td>
<td>CDPROJEKT</td>
<td>14.1</td>
<td>21.3</td>
<td>24.4</td>
<td>1.4</td>
<td>0.7</td>
<td>33.6</td>
<td>54.0</td>
<td>92.0</td>
<td>-1.7</td>
</tr>
<tr><td>4</td>
<td>GPW</td>
<td>14.8</td>
<td>30.5</td>
<td>32.2</td>
<td>21.3</td>
<td>19.3</td>
<td>35.5</td>
<td>37.5</td>
<td>7.2</td>
<td>16.3</td>
</tr>
<tr><td>5</td>
<td>NEUCA</td>
<td>17.1</td>
<td>81.4</td>
<td>78.8</td>
<td>13.2</td>
<td>8.9</td>
<td>1.4</td>
<td>1.5</td>
<td>54.6</td>
<td>72.2</td>
</tr>
<tr><td>6</td>
<td>PEPCO</td>
<td>17.5</td>
<td>61.7</td>
<td>75.5</td>
<td>33.2</td>
<td>53.1</td>
<td>0.0</td>
<td>3.8</td>
<td>n.a.</td>
<td>n.a</td>
</tr>
<tr><td>7</td>
<td>CYFRPLSAT</td>
<td>20.4</td>
<td>57.6</td>
<td>56.4</td>
<td>39.7</td>
<td>39.9</td>
<td>9.4</td>
<td>9.5</td>
<td>23.9</td>
<td>8.4</td>
</tr>
<tr><td>8</td>
<td>LIVECHAT</td>
<td>21.1</td>
<td>10.2</td>
<td>12.2</td>
<td>0.9</td>
<td>0.1</td>
<td>0.1</td>
<td>0.1</td>
<td>70.8</td>
<td>142.5</td>
</tr>
<tr><td>9</td>
<td>TSGAMES</td>
<td>21.8</td>
<td>13.1</td>
<td>26.5</td>
<td>0.0</td>
<td>2.5</td>
<td>31.7</td>
<td>26.2</td>
<td>147.5</td>
<td>178.3</td>
</tr>
<tr><td>10</td>
<td>ALLEGRO</td>
<td>22.5</td>
<td>53.3</td>
<td>46.6</td>
<td>45.3</td>
<td>37.0</td>
<td>15.1</td>
<td>10.5</td>
<td>n.a.</td>
<td>n.a</td>
</tr>
<tr><td>11</td>
<td>HUUUGE</td>
<td>23.0</td>
<td>137.3</td>
<td>167.7</td>
<td>96.4</td>
<td>130.9</td>
<td>1.6</td>
<td>-24.8</td>
<td>n.a.</td>
<td>n.a</td>
</tr>
<tr><td>12</td>
<td>PLAYWAY</td>
<td>23.6</td>
<td>17.4</td>
<td>22.3</td>
<td>0.0</td>
<td>0.0</td>
<td>66.4</td>
<td>110.5</td>
<td>77.0</td>
<td>164.9</td>
</tr>
<tr><td>13</td>
<td>ORANGEPL</td>
<td>23.9</td>
<td>57.6</td>
<td>56.4</td>
<td>36.4</td>
<td>35.9</td>
<td>0.7</td>
<td>0.4</td>
<td>48.6</td>
<td>-7.4</td>
</tr>
<tr><td>14</td>
<td>PKNORLEN</td>
<td>25.0</td>
<td>45.8</td>
<td>50.4</td>
<td>17.7</td>
<td>23.4</td>
<td>3.9</td>
<td>3.2</td>
<td>-20.7</td>
<td>-32.7</td>
</tr>
<tr><td>15</td>
<td>EUROCASH</td>
<td>25.4</td>
<td>88.6</td>
<td>88.4</td>
<td>31.6</td>
<td>33.9</td>
<td>0.3</td>
<td>0.2</td>
<td>24.1</td>
<td>-35.7</td>
</tr>
<tr><td>16</td>
<td>DINOPL</td>
<td>25.8</td>
<td>62.7</td>
<td>59.3</td>
<td>26.3</td>
<td>26.5</td>
<td>5.4</td>
<td>6.4</td>
<td>50.2</td>
<td>101.0</td>
</tr>
<tr><td>17</td>
<td>KRUK</td>
<td>25.9</td>
<td>59.5</td>
<td>56.0</td>
<td>55.9</td>
<td>47.9</td>
<td>24.2</td>
<td>7.0</td>
<td>6.9</td>
<td>-15.2</td>
</tr>
<tr><td>18</td>
<td>LOTOS</td>
<td>27.0</td>
<td>465</td>
<td>56.0</td>
<td>18.7</td>
<td>18.6</td>
<td>3.9</td>
<td>-5.5</td>
<td>-5.6</td>
<td>-50.4</td>
</tr>
<tr><td>19</td>
<td>ASSECOPOL</td>
<td>27.3</td>
<td>60.5</td>
<td>63.8</td>
<td>22.2</td>
<td>20.9</td>
<td>3.0</td>
<td>3.3</td>
<td>38.0</td>
<td>7.0</td>
</tr>
<tr><td>20</td>
<td>AMREST</td>
<td>28.3</td>
<td>80.8</td>
<td>87.8</td>
<td>65.1</td>
<td>72.5</td>
<td>3.3</td>
<td>-12.0</td>
<td>8.3</td>
<td>-36.0</td>
</tr>
<tr><td>21</td>
<td>XTB</td>
<td>29.1</td>
<td>56.9</td>
<td>61.1</td>
<td>3.0</td>
<td>4.6</td>
<td>24.2</td>
<td>50.4</td>
<td>-10.2</td>
<td>353.2</td>
</tr>
<tr><td>22</td>
<td>KETY</td>
<td>30.6</td>
<td>46.3</td>
<td>47.0</td>
<td>29.1</td>
<td>24.7</td>
<td>9.3</td>
<td>12.1</td>
<td>5.2</td>
<td>42.1</td>
</tr>
<tr><td>23</td>
<td>BOGDANKA</td>
<td>32.7</td>
<td>24.3</td>
<td>24.8</td>
<td>0.8</td>
<td>0.8</td>
<td>14.3</td>
<td>4.0</td>
<td>-32.1</td>
<td>-44.9</td>
</tr>
<tr><td>24</td>
<td>BUDIMEX</td>
<td>34.7</td>
<td>87.9</td>
<td>84.6</td>
<td>7.1</td>
<td>6.4</td>
<td>3.0</td>
<td>5.5</td>
<td>51.4</td>
<td>78.8</td>
</tr>
<tr><td>25</td>
<td>CIECH</td>
<td>35.0</td>
<td>60.8</td>
<td>62.8</td>
<td>35.5</td>
<td>35.8</td>
<td>3.4</td>
<td>4.3</td>
<td>-10.4</td>
<td>-18.9</td>
</tr>
<tr><td>26</td>
<td>KGHM</td>
<td>36.4</td>
<td>49.0</td>
<td>50.9</td>
<td>20.0</td>
<td>17.1</td>
<td>6.3</td>
<td>7.6</td>
<td>7.5</td>
<td>91.5</td>
</tr>
<tr><td>27</td>
<td>MERCATOR</td>
<td>40.1</td>
<td>65.6</td>
<td>19.3</td>
<td>38.3</td>
<td>0.3</td>
<td>-0.4</td>
<td>50.7</td>
<td>-7.9</td>
<td>4141.2</td>
</tr>
<tr><td>28</td>
<td>KERNEL</td>
<td>40.4</td>
<td>52.8</td>
<td>51.3</td>
<td>47.0</td>
<td>38.9</td>
<td>2.9</td>
<td>9.1</td>
<td>-7.6</td>
<td>9.0</td>
</tr>
<tr><td>29</td>
<td>JSW</td>
<td>40.6</td>
<td>43.3</td>
<td>54.0</td>
<td>6.5</td>
<td>17.6</td>
<td>7.3</td>
<td>-22.1</td>
<td>-68.2</td>
<td>21.4</td>
</tr>
<tr><td>30</td>
<td>CLNPHARMA</td>
<td>42.3</td>
<td>17.9</td>
<td>35.2</td>
<td>1.0</td>
<td>4.8</td>
<td>-9.0</td>
<td>-0.6</td>
<td>27.0</td>
<td>2.1</td>
</tr>
<tr><td>31</td>
<td>PGNIG</td>
<td>42.3</td>
<td>35.6</td>
<td>29.8</td>
<td>11.4</td>
<td>6.7</td>
<td>3.3</td>
<td>18.7</td>
<td>-37.4</td>
<td>28.1</td>
</tr>
<tr><td>32</td>
<td>TAURONPE</td>
<td>45.2</td>
<td>56.6</td>
<td>60.6</td>
<td>35.7</td>
<td>38.8</td>
<td>-0.1</td>
<td>-12.2</td>
<td>-25.1</td>
<td>66.0</td>
</tr>
<tr><td>33</td>
<td>ENEA</td>
<td>47.3</td>
<td>56.0</td>
<td>59.7</td>
<td>32.0</td>
<td>28.5</td>
<td>2.7</td>
<td>-12.5</td>
<td>-20.1</td>
<td>-17.4</td>
</tr>
<tr><td>34</td>
<td>PGE</td>
<td>49.0</td>
<td>45.5</td>
<td>47.9</td>
<td>16.5</td>
<td>14.5</td>
<td>10.5</td>
<td>0.2</td>
<td>-20.4</td>
<td>-18.3</td>
</tr>
<tr><td>35</td>
<td>GRUPAAZOTY</td>
<td>52.7</td>
<td>54.5</td>
<td>59.7</td>
<td>24.2</td>
<td>28.5</td>
<td>3.3</td>
<td>3.0</td>
<td>6.1</td>
<td>-6.3</td>
</tr>
</table>
<p><strong>*</strong> Share of interest-bearing debt (loans and
borrowings, leases, bonds) in asset financing.</p>
<p>** Annual % change of shares.</p>
<p>Source: own elaboration based on company's financial statements and
money.pl/analytics.</p>
<p>When analysing the percentage change of share prices on an annual
basis, it can be seen that the number of companies characterised by
dynamic growth in 2020 far outweighed the number of companies
experiencing declines in share price. However, due to restrictions on
the share of individual companies in the index portfolio, its value at
the end of 2020 was below the base value set at 10,000 points. By
contrast, at the end of 2021, the index value had increased by 19%.
Given the short time the index has been on the market, the lack of data
on ESG ratings and the index methodology currently used, it would be
difficult to study the impact of ESG ratings on companies' financial
performance and resilience to crises. Nevertheless, such an impact can
be estimated by monitoring changes in ESG scoring in the context of
performance over the years.</p>
<h2>4. Discussion and conclusions</h2>
<p>In response to growing demand, the financial industry is developing
more products and services related to ESG ratings, indices and funds.
Some companies put great effort into managing ESG factors because of the
desire to increase ratings, while others know that ESG considerations
are likely to be at the heart of mainstream investing, and make
long-term decisions with those in mind.</p>
<p>Most ESG indexes are designed to promote companies that have high ESG
ratings relative to their sector peers. As global practices indicate,
ESG ratings are always taken into account as a criterion for inclusion
in the index, and companies whose ratings deteriorate are excluded. For
the newly created WIG-ESG index in Poland, ESG criteria are taken into
account when estimating a company's share in the index portfolio, but do
not disqualify it from membership. The idea behind the creation of the
index was not to identify 'best in class' companies in the area of ESG,
but rather to motivate large liquid asset companies to take ESG factors
into account in their investment decision-making process regardless of
the type of business. The index is expected to attract foreign
individual and institutional investors, for whom ESG factors are of
increasing importance.</p>
<p>In the author’s opinion, a modification of the WIG-ESG index
methodology should be considered in the near future, not only by
allowing smaller companies (sWIG80 constituents) to join the index, but
also by introducing exemptions in terms of ESG scoring. Such an approach
will enable the recognition of companies with strong ESG risk management
efforts, and motivate other companies to make sustainability-oriented
decisions. The risk of exclusion from the index of companies with low or
deteriorating ESG ratings may be a better motivation for sustainability
than simply taking the ratings into account to adjust the shares of
companies in the index portfolio.</p>
<p>The proposed changes are also justified in the way index membership
is used for marketing purposes. The following claims can be found on the
websites of listed companies: “We are happy to inform you that from
today ASBIS is a part of WIG-ESG …and our efforts to build a transparent
and responsible business have been appreciated” (Asbis, 2022).
“Confirmation of the highest standards of social responsibility applied
on a day-to-day basis at KGHM is provided by its participation in a
WIG-ESG Index” (KGHM, 2022).</p>
<p>As highlighted in the literature, incorporating ESG factors into
business decisions can increase creditworthiness and reduce the cost of
capital, have a long-term impact on financial performance and increase
an organisation's resilience to crises. Conducting reliable research on
this aspect would require a relatively stable index portfolio over the
years. Currently, companies that are not part of the WIG20 or sWIG40
indices, after the quarterly revision automatically cease to be part of
the WIG-ESG, and do not receive rating updates by Sustainalytics, making
it impossible to monitor their progress. A major limitation in studying
the impact of a company's membership in an ESG index, including the ESG
rating achieved, on the financial health of companies was the short
(two-year) period of the index's existence. There is a need for future
research on identifying the impact of the improvement/deterioration of
the ESG rating on a company’s financial performance, with particular
emphasis on changes in the capital structure and market value of
companies. Coelho et al. (2023) revealed that the impact of CSR
activities on companies' financial performance becomes more significant
when ESG scores improve. Companies, including those not yet required to
disclose ESG information, need to recognize that planning operational
activities with ESG factors in mind opens up opportunities to reach new
customers with strong social and environmental awareness, facilitates
access to new financing for investment projects, as well as strengthens
the organization's resilience to crises.</p>
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<ol><li><p>The period selected for comparison is: 2.01.2020 -
12.08.2022.<a href="#fnref1">↩︎</a></p></li>
</ol>