Composite ESG ratings and firm value under inflation: Evidence from Borsa Istanbul, 2015–2023
Borsa Istanbul Review, vol.26, no.5, 2026 (SSCI, Scopus)
- Publication Type: Article / Article
- Volume: 26 Issue: 5
- Publication Date: 2026
- Doi Number: 10.1016/j.bir.2026.100862
- Journal Name: Borsa Istanbul Review
- Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, EconLit, Directory of Open Access Journals
- Keywords: Emerging-market firm value, ESG rating, Inflation regime
- Istanbul University Affiliated: Yes
Abstract
This paper examines how the market pricing of the composite ESG rating varies with macroeconomic regime, using an unbalanced panel of 87 Borsa Istanbul non-financial firms over 2015–2023. The Refinitiv/LSEG ESG score is interpreted as a composite rating that combines firm-disclosed information (corporate websites, annual reports, and stand-alone sustainability reports) with third-party inputs (news flow, non-governmental sources) under rater-specific selection and weighting choices; coefficient estimates are therefore interpreted as the pricing of the rating-implied ESG profile rather than of independently-verified ESG practices. Türkiye's transition to inflation reaching an annual average of 72% in 2022 provides unusually sharp within-country variation, exploited through ex ante inflation-exposure interactions and a regulatory shock around the 2020 Capital Markets Board sustainability-reporting framework. The composite ESG rating is positively associated with Tobin's Q but not with return on assets. The Governance-pillar association is stable across inflation regimes, while the Environmental-pillar association erodes and turns negative for highly inflation-exposed firms during high-inflation years. The Environmental result is interpreted as an empirical resolution of two competing channels, a cost and discount-rate channel predicting erosion, and a flight-to-real-assets/risk-management channel predicting strengthening, with the data favouring the former in this setting. Findings caution against treating composite ESG ratings as sufficient statistics in inflation-prone emerging markets, with implications for index construction and disclosure-mandate design.