Technical efficiency of car manufacturers under environmental and sustainability pressures: A Data Envelopment Analysis approach

Managers in the competitive automotive sector face growing pressures in terms of sustainability and environmental performance. While most efficiency studies focus on traditional financial and operating indicators, this study broadens the scope of analysis to include Environmental, Social, and Governance (ESG) activities. The well-known Data Envelopment Analysis (DEA)-Malmquist method is employed to estimate the technical efficiency of 33 global automakers from 2014 to 2017, including their ESG scores as outputs in the model. Our findings show that ESG-adjusted efficiencies tend to be higher than the traditional ones, with the Governanceadjusted model achieving the highest efficiency scores, followed by the Environmental and the Social models. The results of a second-stage bootstrapped truncated regression reveal the significant impact of the automakers' size, degree of innovation and geographical region on the ESG-adjusted efficiencies. Finally, this study has valuable implications for managers in the industry, as well as investors interested in creating sustainable portfolios.