The Use of DEA for ESG Activities and DEI Initiatives Considered as “Pillar of Sustainability” for Economic Growth Assessment in Western Balkans

Abstract

Data envelopment analysis (DEA), which is frequently used in efficiency analysis, has also been applied to the measurement of entrepreneurial efficiency for the attainment of desired values of macroeconomic indicators (such as the objectives of sustainable economic growth). For this application, DEA takes into account the economic, environmental, and social impact of entrepreneurship as the three dimensions of sustainability. This paper aimed to investigate the potential for a scalable (in diversity, equity, and inclusion dimensions) DEA application in sustainable entrepreneurship performance (SEP) assessment through three channels (assessing SEP without ESG activities; ESG→SEP; ESG (DEI)→SEP) and present an empirical study related to economic growth assessment and its environmental, social, and governance (ESG), and diversity, equity and inclusion (DEI) determinants across selected Western Balkans (WB) and European Union (EU) companies, based on the use of the proposed scalable DEA. It highlights how crucial a scalable nonparametric approach to macroeconomic efficiency analysis is and provides a more comprehensive perspective to the researchers on this issue. This study used a non-oriented DEA model with variable return-to-scale in a group of 60 WB and 60 EU companies, all of which adopted ICT/Blockchain (BC) technologies (the 11 ESG metrics). The annual corporate data was collected for seven years from 2017 until 2023. We projected the selected data to three country particularities (mass acceptance, adoption, and implementation of ICT/BC; mass labor force return from overseas; and ethnic, cultural, and religious particularities) and performed statistical analysis. Our findings estimate the influence of these three particularities on economic growth potential. In all countries’ cases, we found a statistically sound (significant, positive) correlation between ESG and SEP’s economic growth quality performance. Particularly, when corporate social and DEI initiatives mediate (channel III), SEP’s economic growth gains the best performance (+18%) in countries with ethnic, cultural, and religious particularities (BiH, NM), a +17% in countries enjoying massive labor force return from overseas (AL) and performs well in quality (particularly in the innovation and integrity) SEP performance success dimensions (all WB and EU countries). The proposed scalable DEA shows clearly, by performing an empirical analysis, which modern business (adopting ICT/BC) is the most effective in achieving sustainability projected to country particularities, helping corporate management to improve economic growth efficiency.

1. Introduction

In entrepreneurship, setting targets and goals requires deep knowledge, appreciation, and understanding of the degree of sustainability. Assessing a company’s economic growth quality is an important theoretical and empirical sustainability testing task. Estimating entrepreneurship’s economic growth potential is always an interesting research topic [1,2,3].

In this research domain, the literature raises the question of assessing economic growth quality and sustainability [4,5,6,7,8,9]. Sustainability is an ecological concept that refers to the utilization of a regenerative natural system in a way that maintains its fundamental characteristics and allows for natural population replenishment [5,6]. Additionally, sustainability is defined as the ability of systems and processes to endure, according to [1,2,5].

Sustainable development serves as the organizing principle for sustainability. It was first introduced into the fields of economics and management in 1987 by the Brundtland Commission, formerly known as the World Commission on Environment and Development (WCED), as an environmentally friendly, commercially viable, and socially acceptable growth pattern [5]. Since then, countless local, national, and international efforts have been launched to address various facets of equitable economic development [5,10].

Many facets of human activity have shown a significant deal of interest in evaluating and improving efficiency, and as such, they merit careful consideration. As a result, one of the most frequently discussed topics in contemporary science about the use of mathematical techniques in economic analysis is the evaluation of efficiency. Data envelopment analysis is one such technique that is gaining popularity since it is straightforward and allows for the examination of complicated problems.

A basic description of the DEA approach and an overview of contemporary efficiency measurement are provided in [11,12]. Numerous studies demonstrate that economic growth is a complex macroeconomic phenomenon; thus, it remains unclear how to fully conceptualize, explain, and fully understand the sources, extent, and mode of their influence on growth [5,6,11,12].

Efficiency is determined by DEA as a ratio between the weighted total of inputs and outputs. It is necessary to combine several inputs and outputs to create one virtual output and one virtual input (weighted sums), which are then converted to a ratio [6]. Because of this method, inputs and outputs must be considered and multiplied by technical coefficients based on their relative relevance [6].

In the formulation of the DEA linear programming model, technical coefficients are considered variables and are not interchangeable. The original DEA model’s developers advise computing technical coefficients as a result of solving a certain linear programming (LP) issue [5,12].

Apart from [1,5,6,12,13], very few surveys have been carried out to the best of our knowledge to systematically examine the present status of the literature and discuss the future research direction, despite the fact that DEA has been utilized extensively in the sustainability field. The authors of [5] show the development dynamics and identify the important articles based on local citation scores and the citation network, but they do not take into account the “social impact” (such as DEI initiatives) and how it affects corporate economic growth assessments.

The Sotiroski’s et al. paper [6], in its DEA approach, uses as input variables a number of rates (inflation, unemployment, poverty, etc.) and as output variables indicators that measure life quality like IHDI, GDP per capita, etc. Our novel DEA approach emphasizes the “Entrepreneurship social impact” scalable in three dimensions (Diversity, Equity, and Inclusion) concept by using six inputs (firm characteristics, macro-economic indicators/conditions, etc.) and three output variables (ESG, SEP, DEI).

The authors of [6,12,13] provide a critical analysis of techniques for incorporating environmental considerations into productive efficiency; however, their research only addresses environmental factors—particularly the unintended consequences of production technology modeling—and leaves out social factors and DEI corporate initiatives, which are also crucial components of sustainability.

In addition, all these reviews are based on subjective and qualitative assessments rather than objective quantitative analysis techniques [1,2,14,15,16,17]. To fill the gap, our study collects data from 50 companies published from 2017 to 2023 and analyzes the research status of DEA applications in sustainability through the ESG and DEI observed independent latent variables and the dependent corporate’s SEP performance dimensions.

Many papers discuss DEA hypotheses around the concept of “sustainable development assessment” [4,5,6,9]. In our DEA approach, there is a similarity to these approaches in the 1st hypothesis (“sustainable economic growth assessment”), but the proposed 2nd hypothesis is novel, introduced in literature (“Environmental, social, and governance (ESG) activities, and diversity, equity, and inclusion (DEI) corporate initiatives can be considered as “pillars of sustainability” at a scale.”).

To establish a scalable DEA framework that incorporates all three elements (ESG, DEI, and SEP) of corporate sustainable development assessment simultaneously, the goal of this paper is to examine the viability of applying DEA to sustainably developed assessments. Furthermore, our scalable DEA not only generates the DEA efficiency ratings but also offers particular recommendations that can be applied to raise the sustainability and efficiency of entrepreneurship.

The main innovation in our manuscript is the “ESG to SEP through DEI” framework established around the “Entrepreneurship social impact” scalable in three dimensions (D, E, I) concept. ESG (1st independent factor in SEM method): A latent variable with 11 responsibility and quality metrics dynamics as observed variables. SEP (2nd independent factor in SEM method): A latent variable with 8 dimensions as observed variables. DEI (the intervention factor in the SEM method): A latent variable with 4 features as observed variables.

1.1. Hypotheses and Data

Hypotheses H1: 

Data envelopment analysis is applicable in entrepreneurship’s sustainable economic growth assessment.

Hypothesis H2: 

Environmental, social, and governance (ESG) activities, and diversity, equity, and inclusion (DEI) corporate initiatives can be considered as “pillars of sustainability” at a scale.

After a review of the relevant literature [6,12,18,19,20], both hypotheses were developed. The DEA results were analyzed theoretically, quantitatively, and qualitatively using panel data (2017–2023) from 120 companies in five WB (Albania, Bosnia & Herzegovina, North Macedonia, Montenegro, and Serbia) and five EU countries (Germany, France, Italy, Netherlands, and Greece). The UN, World Bank, Global Footprint Network, corporate webpages, and in-house data collection are among the reliable and pertinent sources from which the data was gathered.

Raw data collection, filtering, correction, and standardization: The raw data were collected in-house by sustainability experts and validated using more than 50 checks, including checks on validity, completeness, accuracy, consistency, uniqueness, reasonableness, conformity, and timelines. Upon collection, these data were standardized to SI units (for quantitative metrics) as “USD Thousands” (for monetary metrics) and “Tonnes CO₂ Equivalent” (for Kyoto Gases). The standardized data were used to create additional derived metrics, including intensities, proportions, and growth rates. Derived metrics are calculated by integrating one or multiple metrics. The proposed 11 ESG metrics from the ICT/BC domain (as observed variables) were transparency, same-data sharing, knowledge sharing, smart contracts utilization, cyber-hacking protection, sustainability fair, fraudulence suspension, fidelity-integrity-trust, green workshops, environmental awareness, and volunteer environmental cleanup.

1.2. Research Questions

When considering the connection between ESG, SEP, green corporate activities, corporate culture, and DEI initiatives, it is necessary to evaluate the dependability of these correlations. Therefore, the main objective of this article is to assess the statistical significance of the correlation by addressing the following two research questions in view of structural (inner) model fit assessment.

There is a lack of empirical research that looks at the relationship between ESG and company performance for a wide range of enterprises, and the theoretical mechanisms via which corporate adoption of ESG activities affects firm performance are poorly understood [18,21]. This led to the formulation of our initial research query (RQ1): “Does an adoption of environmentally friendly ESG activities improve corporate SEP performance, and to what extent (ESG to SEP dimensions performance)?” [21]. Adoption of this kind can lead to immediate performance advantages through reduced operating expenses, increased supply chain efficiency, etc. [1,21].

We believe that adopting ESG responsibility and quality metrics dynamics can also increase the number of growth opportunities a company has, which boosts hopes for the company’s future performance. In [22,23,24], the authors declare that the benefits of ESG adoption may depend on how well a company can implement quality dynamics into its operations and the racial and cultural makeup of the business environment it operates.

Consequently, we came up with the second research question (RQ2): “Do DEI, cultural, and social corporate initiatives affect (mediate) the link between ESG corporate activities and SEP performance, and to what extent (DEI influence of ESG impact on SEP performance)?”. We specifically look at the correlation between a company’s intangible DEI, cultural, and social activities dynamism and its long-term SEP performance metrics [21].

To answer these two research questions, we used the classic Structural Equation Model (SEM) method and performed a structural model fit assessment to value the standardized path coefficients (ESG to SEP through DEI). Therefore, the primary objective of this article is to address these two research inquiries.

This study aims to fill the substantial gap in the literature (correlation between ESG, DEI, SEP, and the company’s country) via the development of a novel scalable DEA. It contributes to the body of knowledge about the evaluation of sustainable entrepreneurship and economic growth, particularly for businesses looking to expand into foreign markets to diversify their talent and asset bases. Moreover, it advances our comprehension of how corporate social responsibility and DEI activities influence the “social effect/impact”, or relationship, between ESG and SEO performance.

Limitations: The question of which company is the most efficient on the path to sustainability can be answered by the empirical research that was conducted. However, as the DEA approach is relative and can only measure efficiency concerning the other units, it is unable to indicate whether a company is developing sustainably or unsustainably.

2. Materials and Methods

2.1. Standard DEA

When maximizing outputs while utilizing minimum inputs or minimizing inputs while achieving maximum outputs, DEA typically presents DMU (decision-making units) efficiency. Furthermore, known (established or current) input and output data are the foundation for conducting DEA. Hypothesis H1 (“DEA is applicable in sustainable economic growth evaluation”) can be defined by considering the specific qualities of DEA and the general availability of macroeconomic data.

Following the study, the most efficient observed DMU analysis result leads to the production possibility frontier, which is empirically reached. DMU may, therefore, be on or below the manufacturing potential border. It follows that the most efficient observable DMU, which can be considered maximally efficient in turn, determines the production possibility border [6,19].

DMUs with an efficiency of “1” are those that are on the production possibility frontier; those with an efficiency between “0” and “1” are those that are below the frontier. It can also be stated that DEA assumes the highest level of efficiency that can be attained, as demonstrated by the most effective DMU [6]. It is possible to classify every DMU as relatively efficient or relatively inefficient.

The following requirements must be satisfied to classify some DMUs as efficient: (a) no output can be increased without also increasing another output or reducing another output, and (b) no input can be decreased without also increasing another input or decreasing another output [6,18].

The relative nature of the DEA method makes it possible to compare DMUs and perform benchmarking, but it does not provide sufficient information on whether the most efficient DMU, even when characterized as such, achieves acceptable absolute levels of input and output values (or, conversely, whether these absolute levels are consistent with the targeted referent values, if any). Therefore, stem hypothesis H2: “Environmental, social, and governance (ESG) activities, and diversity, equity, and inclusion (DEI) corporate initiatives can be considered as “pillars of sustainability” at a scale.”.

Standard DEA, known as the Charnes, Cooper, and Rhodes (CCR) DEA model, is an LP (linear programming) technique that qualifies the efficiency of a set of comparable decision-making units (j DMU) with multiple i inputs (x_ij), and multiple r outputs (y_rj). This CCR DEA model is described in [25] and is stated as follows:

Standard CCR DEA Equation (1):

$$Max{\theta }_j=\sum _{r \in R}{u}_r{ y}_{rj}/\sum _{i \in I}{v}_i x_{ij}$$

(1)

Standard CCR DEA Equation (2):

$$\begin{array}{l}s.t. \sum _{r \in R}{u}_r y_{rj}-\sum _{i \in I}{v}_i x_{ij} \le 0 \forall j\in J\\ u_r, v_i \ge 0 \forall r\in R, i\in I\end{array}$$

(2)

where the weights assigned to each output (r) and input (i) are represented by the free variables u_r and v_i, and θ_j is the technical efficiency of the DMUj. Because the weights are flexible, a DMUj is considered efficient if it satisfies θ_j = 1 and inefficient if θ_j < 1.

The sustainability level for modern ESG entrepreneurship [2,4,10,12,14] was not included in the original definition of DEA. Hence, it is characterized by low discrimination power (loss of ESG information) and limited social impact functionality (DEI initiatives) [5,8,9,15,21].

2.2. Novel DEA for Sustainability Assessment Considering ESG Activities & DEI Initiatives

A system’s level of sustainability must be measured to move toward sustainable development, and this requires setting targets. Goal-making is difficult since it must consider a variety of factors [19,21,26,27,28,29,30]. Our proposal is a novel DEA approach:

Proposed novel DEA = Standard DEA + “entrepreneurship’s social impact” concept scalable in three dimensions (diversity, equity, and inclusion).

Based on the “entrepreneurship’s social impact” concept [2,21] in the proposed DEA, a DMU is considered efficient of order k if and only if it is determined to be efficient in any subset of the input variables that has k items or more (in the study discussed in next Section, k = 8) [2,3,18,19] (

Table 1. The input/output variable correlation coefficients.

	Firm Characteristics	Macro-Economic Indicators	Macro-Economic Conditions	Macro-Financial Conditions	Company Governance	Access to Finance	ESG	DEI	SEP
FirmCharacteristics	1.00
Macro-economic Indicators	−0.55	1.00
Macro-economic Conditions	0.71	−0.59	1.00
Macro-financial Conditions	−0.17	0.33	−0.05	1.00
Company Governance	−0.66	0.41	−0.77	−0.09	1.00
Access to Finance	0.54	-0.30	0.29	0.38	0.44	1.00
ESG	0.21	−0.22	0.11	0.32	−0.32	0.17	1.00
DEI	0.50	−0.11	−0.42	−0.06	−0.20	0.07	0.42	1.00
SEP	0.31	0.09	−0.21	−0.17	0.29	−0.33	0.11	0.31	1.00

). Therefore, the proposed DEA is a DEI (diversity, equity, inclusion) scalable DEA with a scale factor of k.

The basic idea of the proposed enhanced DEA is to repeat iteratively the calculations of the standard DEA for all possible combinations of input and output variables, with a k dimension efficiency and a DEI “entrepreneurship’s social impact” sustainability efficiency [6,18,19].

The proposed methodology is displayed in Figure 1 as a DEI (diversity, equity, and inclusion) scalable DEA with a scale factor of k (a subset of inputs of cardinality k). According to the suggested DEA, a DMU is considered efficient of order k in a certain sustainability dim n if and only if its efficiency for every subset of its eight cardinality—k inputs equals 1.

In the selected SEM method (performing a structural model fit assessment to value the standardized path coefficients “ESG to SEP through DEI”) the latent variable ESG is regarded as the 1st independent factor with eleven (11) responsibility and quality metrics dynamics as observed variables (Transparency, Same-data sharing, Knowledge sharing, Smart contracts utilization, Cyber-hacking protection, Sustainability fair, Fraudulence suspension, Fidelity-Integrity-Trust, Green workshops, Environmental awareness, and Volunteer environmental cleanup) [1,2,3,4,6,21] (Figure 2).

The latent variable SEP is regarded as the 2nd dependent target factor with eight (8) dimensions as observed variables (Financial performance/FP, Operational performance/OP, Quality performance/QP, Supply chain performance/SCP, CSR performance/CSRP, Green corporate performance/GCP, Innovation performance/INP, and Integrity performance/IP) [1,2,3,4,5,6,21] (Figure 2).

Finally, the latent variable DEI is regarded as the intervention factor with four (4) features as observed variables (staff & laborer, clients & customers, local community & social followers) [2,3,6,8,21] (Figure 2).

2.3. ESG and SDG in the Western Balkans—An Overall Perspective

When considering sustainability or sustainable development in the business, the terms ESG (Environmental, social, and governance) and SDG (Sustainable Development Goals) are used.

ESG definition: The collection of environmental, social, and governance factors that can materially affect a business. ESG’s main dimensions are environmental, social, and governance. ESG’s main objective is to identify ESG-related risks and opportunities for companies’ financial performance. Environmental, social, and governance is a set of aspects, including environmental issues, social issues, and corporate governance, that can be considered in investing (responsible or impact investing). It is a framework used to evaluate a company’s sustainability and ethical impact. Investors analyze ESG risks, together with financial and business risks, in their credit selection process. ESG issues, such as corruption and climate change, are assessed for their potential impact on macro factors that affect an issuer’s ability to repay its debt.

“ESG investing focuses on companies that follow positive environmental, social, and governance principles. Investors are increasingly eager to align their portfolios with ESG-related companies and fund providers, making it an area of growth with positive effects on society and the environment”.

(S&P Global, 21 March 2024)

The ESG effectiveness is measured by ESG metrics, which can be divided into two main categories: quantitative and qualitative. Quantitative metrics are based on numerical data that often can be directly measured and compared. Examples of quantitative ESG metrics include greenhouse gas emissions, energy usage, employee turnover rates, and reported HR violations [21].

In our framework, latent variable ESG is the 1st independent factor, and we are using 11 quality metrics dynamics as observed variables to measure ESG effectiveness (transparency, same-data sharing, knowledge sharing, smart contracts utilization, cyber-hacking protection, sustainability fair, fraudulence suspension, fidelity-integrity-trust, green workshops, environmental awareness, and volunteer environmental cleanup) (Figure 3).

SDG definition: A complete set of goals that needs to be achieved to ensure sustainable development at a global level. SDG’s main dimensions are environmental, social, economic, and governance. SDG’s main objective is to highlight urgent global sustainability challenges and ensure a sustainable future for all.

The top eight countries that have been leading the way in improving global progress on the SDGs are Sweden. Sweden (consistently ranks as one of the top-performing countries in terms of SDG implementation), Denmark, Finland, Norway, Switzerland, New Zealand, Canada, and Germany.

In order to achieve global parity and eradicate poverty in all of its forms, the United Nations (UN) unveiled the 2030 Agenda for Sustainable Development in 2015 [26,27,31]. This Agenda calls on all international organizations and national governments to take immediate action to change the way that development is currently done and instead choose a sustainable route that integrates the economic, social, and environmental aspects of development. Albania has the greatest challenge in terms of youthful human capital, with a youth unemployment rate of over 22% from 2017 to 2023 and even reached over 30% in 2014, 2015, and 2016. Nonetheless, in the WB region, it is the nation with the lowest unemployment rate.

The high unemployment rate in Bosnia & Herzegovina and North Macedonia between 2017 and 2023 indicates how challenging the situation was for young people who were not engaged in the workforce [2,6,20]. The lowest percentage of young inactivity, ranging from 13–20% between 2017 and 2023, was recorded in Montenegro (except from 2020) and Serbia; nonetheless, this percentage was still higher than the EU average of 10%.

The 2030 Agenda offers a systematic monitoring and evaluation framework on the specific goals to be achieved by 2030 [31], in contrast to earlier global development initiatives reflected in the UN Millenium Declaration [27] and the Rio Declaration on Environment and Development [26], which were frequently criticized as not being sufficiently concrete and operationalized [32]. Respecting development targets, however, frequently presents policymakers with difficult decisions that force them to decide between short-term political interests and long-term aspirations for sustainable development [33].

Dahl [34] identified six key obstacles to the successful implementation of the SDGs in the Western Balkans: accountability, local communities, wider society involvement, government leadership, and engagement with the Balkans. Even after the new goals were implemented for six years, the primary obstacle remains the conversion of global goals into national policy priorities, considering the disparities in national capacities and realities. Thus, the key concerns remain how to establish national planning procedures, promote cooperation amongst institutions, and reinforce the connection between current socioeconomic patterns and sustainable development challenges.

The presented in this paper relationship between ESG/Sustainability/DEI and economic performance should clarify a unique contribution for estimating the current state of SDG implementation in the five WB countries (Albania, Bosnia & Herzegovina, North Macedonia, Montenegro, and Serbia) as well as their status as EU candidate nations. Additionally, it identifies the primary obstacles and highlights the areas in which the most progress has been attained.

After the introduction of the latent, observed, and control variables and the definition of the research hypotheses, the final conceptual framework for evaluating the ESG quality metrics dynamics on sustainable entrepreneurship performance has been formulated. Figure 3 shows the proposed conceptual model in detail (latent, observed, and control variables, mediations, constructs path direct and indirect relationships) and the two sustainable performance channels (ESG→SEP, and ESG (DEI)→SEP).

3. Results

The proposed enhanced scalable DEA has been tested in 60 category A’ companies (a balanced group of six companies per country (2 large/EBITA, 2 medium/EBITA, 2 small/EBITA) for the five WB and five EU countries) known as control firms and in 60 category B’ companies (a balanced group of six companies per country for the five WB and five EU countries) known as suspicious firms. We define “control” firms as those with an outlook credit rating “positive” or “stable” according to S&P Global (https://disclosures.spglobal.com, accessed on 5 April 2024). Accordingly, we define “suspicious” firms as those with an outlook credit rating “low” or “negative” according to S&P Global.

The data was selected for the period 2017–2023 from UN Development Programme, and World Bank Open Data [19]. According to the proposed by [1] estimating entrepreneurship growth potential empirical model, the six (6) input variables for the proposed ESG/DEA model, are:

• Firm characteristics (ecological footprint; flexibility to high-tech improvements, reducing dependence on natural gas/diesel/electric power prices, environmental awareness, etc.).
• Macro-economic banking sector indicators (reducing dependence on bank loans, reducing summary of non-performing loans, etc.).
• Macro-economic conditions (reducing company’s deficit and debt, increasing company economic activity and credit, etc.).
• Micro-financial conditions (reducing the company’s operation and product development costs, increasing job positions/personnel, etc.).
• Company governance parameters (human resources/specialized jobs, internal control procedures, auditing quality, government effectiveness, reducing dependence on corruption, etc.), and
• Access to finance opportunities (funding flow efficiency, funding quality, possibility of international financing on competitive terms, etc.).

Additionally, the three (3) output variables for the proposed ESG/DEA framework are (Figure 3):

• The environmental and ICT/BC technological agility for ESG corporate activities as 11 ESG metrics dynamics (transparency, same-data sharing, knowledge sharing, smart contracts utilization, cyber-hacking protection, fraudulence suspension, fidelity-integrity-trust, sustainability fair, green workshops, environmental awareness, and volunteer environmental cleanup) [2,21].
• The environmental, cultural, and ethnic activities (ECEA) with four features (staff and laborer habits, clients and customers values, ethnic communities, and power consumption reduction) and the DEI corporate initiatives as a common and successful practice with three features (diversity, equity, inclusion) [2,21].
• The SEP (sustainable entrepreneurship performance) eight performance success dimensions described by financial, operational, quality, supply chain, CSR, green corporate, innovation, and integrity performances [2,21].

The DEA analysis included 120 companies for 7 years, which makes 350 DMUs, compared to corporate efficiency [2,6]. The proposed ESG/SDG model is a non-oriented scalable model with variable return-to-scale functionality (scalable model). All DMUs must function at their optimal scale in order for the suggested scalable ESG/SDG to work (constant return-to-scale functionality) [4,5,6].

Table 1 displays the variable correlation coefficients for the proposed input (firm characteristics, macro-economic banking indicators, macro-economic conditions, micro-financial conditions, company governance parameters, and access to finance opportunities) and output (ESG with 11 observed variables, DEI with 4 observed variables, and SEP with 8 observed variables, see Figure 3) variables, and accordingly, the descriptive statistics for these variables are displayed in

Table 2. Descriptive statistics for input/output variables.

Input Variables with a Scale of 0 to 20	N	Min	Max	Mean	Std. Deviation
FirmCharacteristics	350	3.44	19.01	12.02	2.02
Macro-economic Indicators	350	2.71	18.33	10.09	3.22
Macro-economic Conditions	350	2.01	17.10	7.71	2.98
Macro-financial Conditions	350	4.87	19.22	13.95	3.29
Company Governance	350	3.71	19.55	11.62	3.02
Access to finance opportunities	350	2.76	20	13.80	4.77
ESG (0…100)	350	52.01	92.88	73.31	7.84
DEI (0…10)	350	0	10	4.08	2.02
SEP (0…100)	350	49.11	49.11	70.22	5.61

[2,5,6,12,18,19].

Table 3. DEA efficiency scores by country (mean 7 years data for 12 companies/country)/Channel III (ESG (DEI)→SEP).

DEA Efficiency Score for SEP (Scale 0..100%)	FP SEP ESG→SEP ESG (DEI)→SEP	OP	QP	SCP	CSRP	GCP	INP	IP	Mean
Albania	49.40 49.91 52.67	49.90 52.76 54.88	50.32 54.49 56.89	54.88 56.21 59.90	53.29 56.78 60.04	60.64 63.52 66.89	50.09 52.67 53.54	49.11 52.87 55.90	52.21 54.91 57.59
Bosnia & Herzegovina	76.60 79.94 88.90	77.32 79.43 89.03	67.72 72.99 85.51	70.03 76.32 87.24	72.06 76.42 87.30	75.42 79.54 88.80	70.95 74.49 87.39	73.55 76.77 90.63	72.96 74.62 88.10
North Macedonia	70.85 74.34 80.66	76.20 78.34 82.11	66.10 69.98 72.55	70.33 74.09 79.14	73.65 76.93 79.20	75.90 77.88 81.04	72.55 75.01 79.97	70.31 74.25 77.63	71.99 75.10 79.04
Montenegro	72.90 79.04 88.98	79.92 82.32 87.77	67.20 72.90 77.90	71.93 76.20 81.01	73.86 77.21 80.33	73.49 77.40 80.95	72.95 74.90 80.21	71.50 76.21 80.92	72.97 77.02 82.26
Serbia	72.15 76.66 81.09	76.10 78.90 81.65	66.55 68.08 71.90	70.42 75.88 79.20	73.99 76.03 79.81	75.04 77.70 80.52	72.97 75.32 79.05	71.11 74.84 77.05	72.29 75.43 78.78
Germany	84.97 87.33 90.51	85.57 88.19 91.55	83.82 85.80 89.11	85.19 88.62 90.08	77.70 80.32 84.29	87.71 88.39 90.93	85.22 88.84 90.20	89.65 91.90 93.61	84.98 87.42 90.04
France	83.07 86.87 89.32	85.87 88.52 91.03	83.20 85.90 89.65	84.09 87.90 89.87	77.20 80.90 83.63	85.98 88.05 90.76	84.29 86.55 90.29	88.60 91.06 93.17	84.04 86.97 89.72
Italy	81.72 84.88 89.92	85.02 87.22 91.77	81.87 84.44 89.51	84.12 85.97 87.33	76.22 78.10 80.03	81.80 82.75 84.02	80.94 82.59 85.19	81.70 83.33 85.72	81.67 83.66 86.69
Netherlands	83.72 85.04 88.10	84.17 86.98 90.44	83.20 85.05 88.77	85.02 87.96 89.44	78.79 80.77 84.90	87.11 88.44 90.07	85.33 90.22 94.09	88.86 90.42 93.50	84.53 86.86 89.95
Greece	80.20 82.09 85.22	85.33 87.98 91.04	82.71 84.09 86.10	82.88 84.70 86.03	74.09 76.98 80.12	80.71 82.04 84.66	78.44 80.98 83.92	81.09 83.52 85.07	80.68 82.80 85.27

provides an overview of the analysis’s findings for channel III ESG (DEI)→SEP (DEA efficiency scores by country and the DEI corporate initiatives in a mediator role for ESG activities and SEP performance) [2,6,12,21]. Additionally, Table 3 demonstrates the countries with the best performances for the “INP” (innovation performance), “IP” (integrity performance), and “mean” observed variables of the eight dimensions of the latent global variable SEP.

A comparative comparison of countries concerning measured relative efficiency is made possible by performing computations utilizing retrieved data. Countries with high output variable values and low input variable values that maintained a sufficient degree of coherence in their values toward environmental preservation, social development, and economic development were found to have the greatest results [25,26,27].

3.1. ESG/CSR, and Goodwill Impairment

Goodwill in an M&A event (Mergers and Acquisition (M&A) events is a term to describe an acquisition of a company by way of consolidation, merger or reorganization of the company with or into another entity, or the sale or license of all or substantially all of the company’s assets or intellectual property) is the price premium the acquirer is willing to pay over the fair market value of the target company. It reflects the future economic benefits that are hard to identify separately (IFRS 3, para.52) [28].

Corporate social responsibility (CSR) refers to corporate efforts to have a positive impact on society at large [29]. To study whether and how CSR, in particular strategic donations, plays a role in goodwill impairment delay, we manually collect 3354 M&A events from 2017 to 2023, track these 50 firms (deliberately excluding the abnormal 2019/2020 years of the COVID-19 disruptions when the impairment was hard to determine), and explore the relationship between their philanthropic CSR donations and the timeliness of goodwill impairment (defined in this article as CSR discount rate).

The recent literature points out that firms may misuse ESG/CSR to cover up corporate fraud such as goodwill impairment [29,30]. In our data, 48% of our sample incurred goodwill impairment in the tracking period of 2017–2023; 1610 out of 3354 M&A events (see

Table 4. Goodwill impairment/CSR/SEP grouped by country (mean seven years data for six control companies/country; 2017–2023).

	M&A Events	No. of Goodwill Impairment Cases	Percentage of Impairment Cases (%)	No. of CSR Initiatives	Percentage of CSR Initiatives (%)	Upward Cash Flow Management (Robust Entrepreneurship Performance Indicator)
						SEP Direct Channel I	ESG→SEP Channel II	ESG(DEI)→SEP Channel III
Albania (AL)	162	78	4.84%	109	4.56%	67.33%	80.80% (+3%, and +17%)	82.14% (+5%, and +17%)
Bosnia & Herzegovina (BiH)	255	122	7.58%	138	5.77%	71.21%	78.33% (+3%, and +7%)	92.57% (+5%, +7%, and +18%)
North Macedonia (NM)	234	107	6.65%	122	5.10%	68.13%	70.17% (+3%)	83.80% (5%, and +18%)
Montenegro (MN)	231	110	6.83%	128	5.35%	72.88%	75.07% (+3%)	80.90% (+5%, and +6%)
Serbia (SRB)	302	143	8.88%	161	6.73%	67.11%	69.12% (+3%)	70.47% (+5%)
Germany (D)	498	251	15.59%	343	14.34%	75.33%	82.86% (+3%, and +7%)	84.37% (+5%, and +7%)
France (F)	422	203	12.61%	288	12.04%	74.13%	81.54% (+3%, and +7%)	83.03% (+5%, and +7%)
Italy (I)	370	177	11.00%	328	13.71%	72.65%	79.92% (+3%, and +7%)	81.37% (+5%, and +7%)
Netherlands (NL)	534	266	16.52%	482	20.15%	74.88%	82.37% (+3%, and +7%)	83.87% (+5%, and +7%)
Greece (GR)	346	153	9.50%	293	12.25%	71.09%	78.20% (+3%, and +7%)	79.62% (+5%, and +7%)
Total	3354	1610	100%	2392	100%

). The proportion of goodwill impairment is rather stable at around 48% each year, and the wealth of a country seems to have great impact on goodwill impairment (positive correlation between the country’s wealth and goodwill impairment).

We find that companies in the five EU member states use much more CSR initiatives to assess goodwill for impairment than do companies in the five WB countries. Furthermore, we find a higher positive association between the goodwill impairments/CSR initiatives/robust entrepreneurship performance for EU enterprises in comparison to WB firms (particularly for the ESG (DEI)→SEP setup). This is consistent with [1,2,4,5,6].

Furthermore, we find that German firms with the highest ESG/SDG efficiency score for sustainable entrepreneurship performance from the EU countries in channel III (84.37%) and BiH companies with the highest ESG/SDG efficiency score for sustainable entrepreneurship performance from the WB countries (92.57%), show the stronger upward cash flow management than the rest EU and WB countries (“cash flow management” is tracking and controlling how much money comes in and out of a business in order to accurately forecast cash flow needs. It’s the day-to-day process of monitoring, analyzing, and optimizing the net amount of cash receipts—minus the expenses).

3.2. ESG/SDG/SEP Channels and Country Particularities

The proposed ESG/SDG framework uses three channels, as configuration “setups”, in order to evaluate the influence of the 11 ESG metrics (as ICT/BC adoption observed variables), and the DEI corporate initiatives to sustainable entrepreneurship growth potential (SEP).

The following list demonstrates the three channels as configuration “setups” (ESG/SDG framework, Figure 3).

• Channel (setup) I: The latent variable SEP without any ESG activities is evaluated.
• Channel (setup) II: The latent variable SEP with the 11 ESG ICT/BC adoption activities (as observed variables/metrics dynamics) is evaluated.
• Channel (setup) III: The latent variable SEP with the 11 ESG ICT/BC adoption activities (as observed variables/metrics dynamics) and the ECEA (Environmental, Cultural, and Ethnic Activities) and DESI (Diversity, Equity, Inclusion, and Social Initiatives) corporate activities and initiatives as a mediatory factor is evaluated.

Additionally, we considered the following three country particularities that directly or indirectly affect the performance of businesses:

1st

particularity (P.1): “mass acceptance, adoption, and implementation of ICT/BC technologies”, detective in all EU companies and in BiH companies from the WB countries.

2nd

particularity (P.2): “mass labor force return from overseas”, detective only in AL companies.

3rd

particularity (P.3): “ethnic, cultural, and religious”, detective in BiH and NM companies, and partially in MN companies (“cultural” dimension).

Following, we performed a statistical analysis of the selected data, and the following Table 4 displays the results in a tabular format considering the ESG/SDG framework’s three channels and the detected three (country) particularities.

Comments:

Considering SRB companies’ performance (Serbia, a country without any of the considered three particularities) as a benchmark, our findings are:

• For the benchmark country SRB, channel II (ESG→SEP) and channel III (ESG (DEI)→SEP) perform better by +3% and +5%, respectively. The additional +2% in channel III is due to the observed variables innovation and integrity as quality performance dimensions.
• For all companies in WB and EU countries
  Channel II (ESG→SEP) displays +3% performance, and
  Channel III (ESG (DEI)→SEP) enjoys +5% performance.
• Companies in EU countries, under the “mass acceptance, adoption, and implementation of ICT/BC technologies” particularity, perform better by +10% and +12%, respectively, in channels II and III (i.e., this particularity adds +7% better performance in channels II and III than the benchmark country SRB).
• AL companies, under the “mass labor force return from overseas” particularity, perform better by +20% and 22%, respectively, in channels II and III (i.e., this particularity adds +17% better performance in channels II and III than the benchmark country SRB).
• BiH companies, under the “mass acceptance, adoption, and implementation of ICT/BC technologies” and “ethnic, cultural, and religious” particularities, perform better by +10% and 30%, respectively, in channels II and III (i.e., the 1st particularity adds +7% better performance in channels II and III, and the 2nd particularity adds +18% in channel III than the benchmark country SRB).
• NM companies, under the “ethnic, cultural, and religious” particularity, perform better by +23% in channel III (i.e., this particularity adds +18% better performance in channel III than the benchmark country SRB).
• MN companies, under the “cultural” particularity, perform better by +11% in channel III (i.e., this particularity adds +6% better performance in channel III than the benchmark country SRB).
• The German and BiH companies’ performance is also proof of the superiority of the ESG (DEI)→SEP channel III (vs. the SEP direct channel I, and the ESG→SEP channel II) with robust entrepreneurship performance enforcement (upward cash flow management).

A company’s goodwill valuation is a crucial component in determining the amount and risk of its overall future cash flow. It also enables investors to make assumptions about the caliber and even reliability of management’s reporting. Consequently, in order to ascertain if goodwill has been impaired, regulators, investors, analysts, and auditors all have a continuing interest in either ensuring that companies recognize goodwill impairment in a timely manner or in gathering and evaluating information on their own.

The impact of CSR charity donations on the timeliness of goodwill impairment is examined in this research, and the results show that enterprises donate in a timely manner, as opposed to making untimely goodwill impairment (long-term sustainable entrepreneurship performance) [29].

The literature on the relationship between goodwill impairment/CSR/SEP, which primarily focuses on altruism (long-term or absolute level of CSR) and the amount or frequency of realized goodwill impairment, benefits greatly from our study on impairment timing and abnormal donations [29].

3.3. The Endogeneity Problem (Issue)

This research employs the quantity of provincial charitable funds and the number of deaths from natural catastrophes in the province as instrumental variables for short-term anomalous donations in order to mitigate the endogeneity problem.

Overall, we discover that companies may manipulate charity contributions as a component of their corporate social responsibility to conceal goodwill impairment delays and to safeguard short-term stock gains when revealed. Furthermore, our findings imply that increasing corporate information transparency will probably deter this kind of activity.

3.4. Pearson’s Correlation Coefficients

The Pearson’s ρ as a quality measure initiative on sustainable entrepreneurship growth dynamics, reflects the strength in and direction of the linear relationship between the corporate’s EBIT profit and the three (3) channels related to the sustainable growth potential through which ESG/CSR can affect economic performance (i.e., the three setups: SEP, ESG→SEP, and ESG (DEI)→SEP of the proposed ESG-DEI-SEP framework (Figure 3).

Three (3) correlation coefficients were calculated per country between the corporate EBIT 7-year dataset and the corresponding 7-year sets for the three channels/setups. The ρ values were calculated by using the cor() function from the 7-year mean EBIT data per sample group of companies/per country, as well as the 7-year mean EBIT data per sample group of companies/per country/per setup.

These coefficients in a tabular format are presented in

Table 5. PCC ρ values, as secondary data, for the EU and WB companies (Balanced sample group of six control companies/country; 2017–2023).

7-Year Mean Corporate EBIT Profitability (Country)	Cash Flow Management (Economic Growth Dynamics)
	Channel I (SEP Direct Setup)	Channel II (ESG→SEP Setup)	Channel III (ESG (DEI)→SEP Setup)
Albania	0.592	0.663	0.744
Bosnia & Herzegovina	0.692	0.798	0.854
North Macedonia	0.623	0.721	0.833
Montenegro	0.631	0.734	0.842
Serbia	0.633	0.728	0.848
Germany	0.834	0.908	0.994
France	0.776	0.873	0.905
Italy	0.770	0.852	0.865
Netherlands	0.812	0.898	0.939
Greece	0.765	0.839	0.850

(tabulated Pearson’s ρ values for a balanced group of five companies per country for the 7-year period 2017–2023).

From the Table 5 tabular data, we see that for the EU companies (ρ value closer to “1”), we are more confident of a positive linear correlation between the country’s 7-year mean corporate EBIT profitability and Cash Flow Management (economic growth dynamics), particularly when a social/DEI footprint is involved (i.e., the ESG (DEI)→SEP setup channel).

3.5. The Proposed Framework’s Validation Test

Managers can increase the estimated fair value of goodwill in order to justify not recognizing impairment by using one of two methods under International Financial Reporting Standards (IFRS, https://ifrs.org, accessed on 10 April 2024) a set of accounting rules for the financial statements of public companies that are intended to make them transparent, consistent, and easily comparable): (a) making overly optimistic valuation assumptions, or (b) inflating current cash flows in order to increase future cash flow forecasts. We hypothesize that enforcement affects the relative use of these two options because it restricts the use of optimistic valuation assumptions.

We compare the sample of the 60 control companies from ten EU and WB countries, known as control firms (Table 4 and Table 5), with a sample of another 60 suspect companies, known as suspicious firms (

Table 6. Goodwill impairment/CSR/SEP grouped by country (mean of seven years data for six suspicious companies/country; 2017–2023).

	M&A Events	No. of Goodwill Impairment Cases	Percentage of Impairment Cases (%)	No. of CSR Initiatives	Percentage of CSR Initiatives (%)	Upward Cash Flow Management (Robust Entrepreneurship Performance Indicator)
						SEP Setup	ESG→SEP Setup	ESG(DEI)→SEP Setup
Albania (AL)	160	73	4.48%	122	4.83%	68.23%	81.88% (+3%, and +17%)	83.24% (+5%, and +17%)
Bosnia & Herzegovina (BiH)	260	129	7.91%	145	5.74%	73.29%	84.28% (+3%, and +12%)	98.94% (+5%, +12%, and +18%)
North Macedonia (NM)	230	102	6.26%	132	5.22%	69.22%	71.30% (+3%)	85.14% (+5%, and +18%)
Montenegro	233	111	6.81%	138	5.46%	72.90%	75.09% (+3%)	80.92% (+5%, and +6%)
Serbia (SRB) The benchmark country	303	148	9.08%	181	7.16%	68.54%	70.60% (+3%)	71.97% (+5%)
Germany (D)	496	258	15.83%	365	14.44%	79.03%	90.88% (+3%, and +12%)	92.47% (+5%, and +12%)
France (F)	425	200	12.27%	299	11.83%	78.22%	89.95% (+3%, and +12%)	91.52% (+5%, and +12%)
Italy (I)	380	188	11.53%	343	13.56%	79.50%	91.43% (+3%, and +12%)	93.02% (+5%, and +12%)
Netherlands (NL)	530	269	16.50%	498	19.70%	79.82%	91.79% (+3%, and +12%)	93.39% (+5%, and +12%)
Greece (GR)	352	152	9.33%	305	12.06%	76.39%	87.85% (+3%, and +12%)	89.38% (+5%, and +12%)
Total	3369	1630	100%	2528	100%

and

Table 7. PCC ρ values, as secondary data, for the EU and WB companies (Balanced sample group of six suspicious companies/country; 2017–2023).

7-Year Mean Corporate EBIT Profitability (Country)	Percentage of CSR Initiatives (%)	Cash Flow Management (Economic growth Dynamics)
		Channel I (SEP Setup)	Channel II (ESG→SEP Setup)	Channel III (ESG(DEI)→SEP Setup)
Albania	4.83%	0.682	0.798	0.894
Bosnia & Herzegovina	5.74%	0.811	0.890	0.904
North Macedonia	5.22%	0.803	0.881	0.902
Montenegro	5.46%	0.810	0.849	0.902
Serbia	7.16%	0.809	0.888	0.918
Germany	14.44%	0.940	0.955	0.997
France	11.83%	0.890	0.913	0.988
Italy	13.56%	0.905	0.962	0.995
Netherlands	19.70%	0.921	0.948	0.992
Greece	12.06%	0.898	0.919	0.952

), in order to test the proposed ESG/SDG model.

We define “suspicious” firms as those with an outlook credit rating “low” or “negative,” according to S&P Global (https://disclosures.spglobal.com, accessed on 10 April 2024). The suspicious firms are likely to postpone reporting goodwill impairment (Table 6 and Table 7).

Comments:

Considering SRB companies’ performance (Serbia, a country without any of the considered three particularities) as a benchmark, our findings are:

• For EU and BiH suspicious companies, under the “mass acceptance, adoption, and implementation of ICT/BC technologies” particularity, the channels II and III performances enjoy an additional +5% than the control companies in the same countries (Table 4) (i.e., +15%/channel II, and +17%/channel III for suspicious EU companies, and +15%/channel II, and +35%/channel III for suspicious BiH companies).
• For the suspicious companies of the benchmark country SRB, channel II (ESG→SEP) and channel III (ESG (DEI)→SEP) perform better by +3% and +5%, respectively. The additional +2% in channel III is due to the observed variables innovation and integrity as quality performance dimensions.
• For all suspicious companies in WB and EU countries
  Channel II (ESG→SEP) displays +3% performance, and
  Channel III (ESG (DEI)→SEP) enjoys +5% performance.
• Suspicious companies in EU countries, under the “mass acceptance, adoption, and implementation of ICT/BC technologies” particularity, perform better by +15% and +17%, respectively, in channels II and III (i.e., this particularity adds +12% better performance in channels II and III than the benchmark country SRB).
• AL suspicious companies, under the “mass labor force return from overseas” particularity, perform better by +20% and 22%, respectively, in channels II and III (i.e., this particularity adds +17% better performance in channels II and III than the benchmark country SRB).
• BiH suspicious companies, under the “mass acceptance, adoption, and implementation of ICT/BC technologies” and “ethnic, cultural, and religious” particularities, perform better by +15% and 35%, respectively, in channels II and III (i.e., the 1st particularity adds +12% better performance in channels II and III, and the 2nd particularity adds +18% in channel III than the benchmark country SRB).
• NM suspicious companies, under the “ethnic, cultural, and religious” particularity, perform better by +23% in channel III (i.e., this particularity adds +18% better performance in channel III than the benchmark country SRB).
• MN suspicious companies, under the “cultural” particularity, perform better by +11% in channel III (i.e., this particularity adds +6% better performance in channel III than the benchmark country SRB).
• The NL and BiH companies’ best performance in channel III is also proof of the superiority of the ESG (DEI)→SEP setup (vs. the SEP direct setup/channel I, and the ESG→SEP setup/channel II) with robust entrepreneurship performance enforcement (upward cash flow management).

Table 8. Sustainable economic performance assessment by country, companies’ category, and country particularities for channels II and III (Data from balanced sample groups of six control and six suspicious companies/country; 2017–2023).

Countries & Particularities		Control Companies (Positive or Stable S&P Credit Ratings)		Suspicious Companies (Poor or Negative S&P Credit Ratings)
		Extra SEP in Channel II	Extra SEP in Channel III	Extra SEP in Channel II	Extra SEP in Channel III
AL	P.1
AL	P.2	+17%	+17%	+17%	+17%
AL	P.3
BiH	P.1	+7%	+7%	+12%	+12%
BiH	P.2
BiH	P.3		+18%		+18%
NM	P.1
NM	P.2
NM	P.3		+18%		+18%
MN	P.1
MN	P.2
MN	P.3		+6%		+6%
SRB	P.1
SRB	P.2
SRB	P.3
D	P.1	+7%	+7%	+12%	+12%
D	P.2
D	P.3
F	P.1	+7%	+7%	+12%	+12%
F	P.2
F	P.3
I	P.1	+7%	+7%	+12%	+12%
I	P.2
I	P.3
NL	P.1	+7%	+7%	+12%	+12%
NL	P.2
NL	P.3
GR	P.1	+7%	+7%	+12%	+12%
GR	P.2
GR	P.3

Notes: 1st particularity (P.1): “mass acceptance, adoption, and implementation of ICT/BC technologies”, detective in all EU and BiH companies from the WB countries. 2nd particularity (P.2): “mass labor force return from overseas”, detective only in AL companies. 3rd particularity (P.3): “ethnic, cultural, and religious”, detective in BiH and NM companies, and partially in MN companies (“cultural” dimension).

summarizes the additional sustainable economic performance gained by each of the three (country) particularities for the ten countries in channels II and III for both the control and the suspicious firms.

4. Discussion

In the proposed ESG/SDG model, which utilizes the DEA to calculate each country’s efficiency in attempting to fulfill a variety of distinct sustainable development goals simultaneously, hypothesis H1 can be confirmed (“Data envelopment analysis is applicable in entrepreneurship’s sustainable economic growth assessment”).

According to Table 3 (reliability of SEP’s growth estimation), we noticed that in WB countries the reliability (sustainability) of corporate’s economic growth estimation was increased by 4.28% (mean data; 342.42→357.08 cumulatively) when ESG activities were incorporated; and when corporate DEI initiatives were adopted in a mediating role, the economic growth estimation reliability increased by 12.66% (mean data; 342.42→385.77 cumulatively).

Accordingly, in EU countries, the reliability (sustainability) of corporate’s economic growth estimation was increased by 2.84% (mean data; 415.90→427.71 cumulatively) when ESG activities were incorporated and when corporate DEI initiatives were adopted in a mediating role, the economic growth estimation reliability increased by 6.20% (mean data; 415.90→441.67 cumulatively). Additionally, the best score was achieved for the “innovation” and “integrity” SEP dimensions, particularly when the DEI corporate initiatives mediate (94.09% for the Netherlands and 93.61% for Germany, respectively) (Table 3).

As far as the 1st research question, “Do the ESG activities improve SEP performance and to what extent?” is concerned, we noticed that the ESG corporate activities improve SEP performance by 3.56% (see Table 3, 2nd-row ESG→SEP, mean data for all WB and EU countries). As far as the 2nd research question, “Do the corporate DEI initiatives influence ESG activities on SEP performance and to what extent?” is concerned, we noticed that the DEI mediation improves SEP performance by 9.43% (see Table 3, 3rd-row ESG (DEI)→SEP, mean data for all WB and EU countries). Therefore, both research questions (RQ1 and RQ2) were answered positively.

Particularly, in the case of Bosnia & Herzegovina, when the DEI initiatives mediate the SEP economic growth, estimating reliability increases by 18.07%, from 74.62% for the ESG→SEP case to 88.10% reliability for the ESG (DEI)→SEP case (based on the mean of 7 years data) (Table 3). This is to be expected due to the peculiarities of this country (multi-ethnic and multi-cultural society). Therefore, hypothesis H2 (“Environmental, social, and governance activities, and diversity, equity, and inclusion corporate initiatives can be considered as “pillars of sustainability” at a scale.”) has been confirmed.

Entrepreneurship in Western Balkans developing countries, as recent democracies in a poor region of Europe with many corruption problems, face many challenges with financing, restrictions on international markets and loans, lack of trust, corruption, and bureaucracy [11,20]. These entrepreneurship performance limitations are more obvious when sustainability is adopted in corporate strategy [20,21].

In the Western Balkans region, the greater the absence of transparency or susceptibility to corruption, the more imperative it becomes to adopt innovative ESG strategies. This is the context in which ESG emerges as a potential solution to address the challenge of integrating entrepreneurship performance within corporate management. The study at hand examines the potential impact of ESG/DEI’s decentralized nature on the supervisory mechanism of organizations, specifically concerning the relationship between ESG and companies’ performance. This assumption is based on the understanding that the elimination of intermediaries and the immutability of information facilitated by ESG/DEI can have implications for the supervisory processes within organizations. Contrarily, it is hypothesized that the incorporation of Blockchain technology (an observed variable for quality ESG metrics) as a framework for digital currency infrastructure could potentially impact the operational efficiency of a company by enabling transparency and fostering trust.

When analyzing growth development, it is also critical to determine if a business is sustainable. While DEA provides information about a company’s effectiveness in setting and carrying out goals, it is unable to determine if a company is sustainable in the first place because being the most efficient member of a group does not guarantee sustainability. Rather, it only indicates that a company is more or less efficient than the others.

Given that the analysis of sustainable development must include a determination of whether a company qualifies as sustainable, in addition to comparing and ranking the countries and companies against one another, the DEA method may be employed in this context, provided that it is supplemented by an indicator or method that addresses this drawback.

Furthermore, DEA can only be used to evaluate data that has already been collected and perform ex-post analysis, in which case there are further issues with the analysis’s scope if the data is mostly unavailable. It is not possible to use DEA to anticipate future values and changes in the indicators. Precisely measuring a country’s potential and sustainability constraints as well as its (in)efficiency through gaps to potential values is one potential way to address these drawbacks.

In general, DEA can be used to compare, evaluate, and assess how well businesses are doing as they move toward sustainability, but it is impossible to definitively say whether or not any particular businesses qualify as sustainable. Furthermore, the relative DEA method’s results are very dependent on the choice of DMU and input/output variables. Therefore, it is important to experiment with various configurations and levels of analysis concerning the (time) period and the countries/companies studied.

We discover, in Table 4 and Table 5, that businesses in high-enforcement nations (the five EU member states) assess goodwill for impairment using a greater CSR discount rate than businesses in low-enforcement nations (the five WB countries).

Serbia, a country without any of the considered three particularities, is regarded as the benchmark country. For the control and suspicious SRB companies, channel II (ESG→SEP) and channel III (ESG (DEI)→SEP) perform better by +3% and +5% respectively. The additional +2% in channel III is due to the observed variables innovation and integrity as quality performance dimensions (Table 8).

For all control and suspicious companies in WB and EU countries, the channel II setup (ESG→SEP) displays +3% performance, and the channel III setup (ESG (DEI)→SEP) enjoys +5% performance. Also, we discover that in the EU (high enforcement), suspicious enterprises demonstrate +5% stronger upward cash flow management compared to control firms (+12% in suspicious than +7% in control firms better performance for the EU companies) (Table 6 and Table 8). This is due to the “mass acceptance, adoption, and implementation of ICT/BC technologies” in EU countries’ particularity, and it is not the case for the WB (low enforcement) countries. Hence, we demonstrate that “shady” businesses are more likely to gradually tarnish goodwill in nations with strong enforcement [2,29,30].

Additionally, AL control and suspicious companies, under the “mass labor force return from overseas” (country’s) particularity, perform better by +20% and 22%, respectively, in channels II and III than in the channel I setup (i.e., this particularity adds +17% better performance in channels II and III than the benchmark country SRB) (Table 8).

BiH control/suspicious companies, under the “mass acceptance, adoption, and implementation of ICT/BC technologies” and “ethnic, cultural, and religious” particularities, perform better by +10%/+15% and +30%/+35%, respectively in channels II and III (i.e., the 1st particularity adds +7%/+12% better performance in both channels II and III, and the 2nd particularity adds +18%/+18% in channel III than the benchmark country SRB) (Table 8).

NM control/suspicious companies, under the “ethnic, cultural, and religious” particularity, perform better by +23%/+23% in channel III (i.e., this particularity adds +18% better performance in channel III than the benchmark country SRB) (Table 8).

MN control/suspicious companies, under the “cultural” particularity, perform better by +11%/+11% in channel III (i.e., this particularity adds +6% better performance in channel III than the benchmark country SRB) (Table 8).

According to Table 4, the German and BiH companies’ best performance in channel III is also proof of the superiority of the ESG (DEI)→SEP channel III (vs. the SEP direct channel I and the ESG→SEP channel II) with robust entrepreneurship performance enforcement (upward cash flow management). Additionally, according to Table 6, the NL and BiH companies’ best performance in channel III is also proof of the superiority of the ESG (DEI)→SEP setup (vs. the SEP direct setup/channel I, and the ESG→SEP setup/channel II) with robust entrepreneurship performance enforcement (upward cash flow management).

Finally, for suspicious firms compared to control firms we observe, for both EU and WB firms, a stronger positive correlation (Pearson’s ρ values) between the CSR discount rate and the (upward) cash flow management (Table 7). This outcome is in line with suspicious firms replacing overstated current cash flows with optimistic valuation assumptions [29,30].

5. Conclusions

The primary objective of this work was to propose a theoretical model that examines the influence of 11 ESG quality metrics dynamics on corporate governance (sustainable entrepreneurship performance with eight dimensions), with a specific focus on the mediating roles of DEI (diversity, equity, and inclusion functionalities). Furthermore, the findings of this study were intended also to be applicable to managers adopting the ESG theory in companies in the Western Balkans.

In the Western Balkans area, the various ethnic, cultural, and religious particularities and the labor force return from overseas, under DEI initiatives, could have a positive impact on sustainable entrepreneurship performance. The findings of this study underscore the significance of the acceptance, adoption, and implementation of ICT/BC technologies as key capabilities for emerging firms with low or negative credit ratings.

ICT/Blockchain technologies affect the corporate governance mechanism by eliminating intermediaries and information invariance and creating transparency in companies that operate in environments with a significant presence of shadow economy like in the case of the Western Balkans. Therefore, blockchain can be introduced as one of the factors affecting the regulatory and control mechanism of a company, and BC adoption has a direct and indirect (through cultural activities and initiatives) impact on corporate performance. Therefore, corporate managers can use blockchain as a digital currency platform and information distribution feature to improve their financial and operational performance.

In the global cultural diversity domain, the development of AI gives rise to and functionality to global environmental, cultural, and social initiatives that directly impact the global cultural ecosystem [35,36,37,38,39]. Various studies have observed the indirect impact of global cultural diversity on ESG performance metrics [2,21,40,41,42,43,44,45,46,47]. Particularly, international clients from culturally diverse countries may influence corporate innovation and integrity ESG metrics because cultural differences between the stakeholders affect entrepreneurial behavior [21].

Moreover, the significance of corporate culture becomes evident during periods of significant transformations or economic recessions [21,43]. A strong DEI-friendly corporate environment helps a company adapt faster and weather these issues, giving employees confidence in their future [21,29,30]. Thus, companies from culturally restricted countries should consider DEI compliance when internationalizing to gain a competitive edge.

We have proposed an ESG/SDG model with a scalable DEA methodology for the assessment of the level of entrepreneurship’s economic growth estimation reliability and sustainability. The proposed DEA: (i) improves discriminatory power by integrating standard DEA with the “social impact” concept; (ii) avoids losing information regarding “pillars of sustainability” the ESG activities and DEI initiatives; and (iii) offers scalable functionality because both ESG and DEI dimensions are easily expanded (1D arrays).

The capabilities of the proposed DEA have been illustrated by assessing corporate data from 120 WB and EU companies. By advancing technology and helping to create future policies under the framework of sustainable development, the approach presented in this study can help smooth the transition to a more sustainable future.

The DEA approach, which is frequently employed in efficiency analysis, is used to measure an organization’s efficiency with respect to reaching target values for macroeconomic indicators, typically those related to economic growth. This study examines the usefulness of DEA in measuring sustainable development, which is in line with the paper’s goal. Achieving both intragenerational and intergenerational justice and equality while attaining economic sustainability within the parameters set by the environment is the ultimate goal of sustainable development.

A non-oriented DEA model with variable return-to-scale was used to analyze a set of fifty enterprises. The analysis was successfully completed, leading to the validation of hypotheses H1 (“DEA is applicable in sustainable economic growth assessment”) and H2 (“ESG activities, and diversity, equity, and inclusion corporate initiatives can be considered as “pillars of sustainability” at a scale.”). In other words, economic, social, environmental, and DEI variables significantly affect the overall efficiency of observed companies to promote sustainable economic growth [6,12].

In light of the issue this research addresses, DEA ought to be applied cautiously by tying technical advancement to political and national contexts, which will lessen issues arising from racial and cultural diversity [35,36,37,38]. Sustainable economic growth is mostly facilitated by advances in technology and innovation; political, ethnic, cultural, and managerial inefficiencies are the primary barriers [1,5,6]. Because of this, evaluating the effectiveness of economic growth is crucial for making decisions [1,21].

Analysis can provide answers to questions about which nation or business is most efficient in achieving sustainability, which businesses are all efficient in achieving high output variable and low input variable values, or how to coordinate the simultaneous achievement of several sustainable development goals [39,40,41,42]. However, because the DEA approach is relative and only measures efficiency in relation to other units, it cannot determine whether a company’s development is sustainable or not (nor can it indicate whether a given level of efficiency is sufficient to fulfill the goal).

This study’s limitations are mostly related to the methodology used, as the choice of variables and sample has a significant impact on the DEA models’ outcomes. Due to its relative nature, DEA can only assess efficiency in relation to other units. Therefore, altering the nations and companies included in the analysis or selecting other input or output variables will alter the DEA analysis’s findings, making this an intriguing subject for additional study.

Since ESG practices may both represent a company’s operational performance and its value, ESG scores are modeled concurrently as an input for the market stage and as an output of the operational performance stage [43,44,45,46,47]. That is, we look at the effects of both ESG and its three distinct components (E, S, and G) and DEI (D, E, and I) in order to evaluate the influence of ESG activities and DEI corporate initiatives on company performance, as opposed to focusing on ESG metrics as a single variable. In this domain, sensitivity analysis is carried out, utilizing a particularly useful DEA architecture [48,49,50].

Finding better ways to measure country potentials regarding variables and gaps between actual and potential values, as well as improving the databases to allow for further measurements through variable combinations and the inclusion of different DMUs, are additional steps that could be taken to improve the possibility of applying the DEA method in sustainable development analysis.

By quantifying business efficiency from the perspectives of operational and market efficiency, this study adds to the body of literature. The following are its principal empirical findings: (a) Efficiency at the market stage improves the overall performance of listed organizations in terms of sustainability, operations, and finances. (b) The suggested modeling framework’s mechanism gives academics access to efficiency data and lets them rank the performance of businesses. As a result, it might provide investors and decision-makers in businesses with a helpful tool for learning about sustainable and ethical investing. (c) Interestingly, while performance is determined by the operational and market stages, it is still unclear how sustainability determinants affect company success. (d) The empirical results show that ESG practice is still in its infancy in emerging nations; it will take time for businesses to adopt and internalize the relevant norms and legislation.

These empirical results recommend a number of actions for emerging market participants, corporate management, regulators, and policymakers. The creation of laws, rules, and disclosure standards for sustainable activities (such as ESG and DEI corporate reporting) ought to be a top priority for policy. Western Balkans ESG/sustainability/DEI and economic performance assessment techniques are still in their infancy and have accelerated implications for researchers and practitioners. Hence, more ESG and DEI data and indicators must be made available of higher quality and with greater transparency.

This could offer a useful framework for structuring the macroeconomic environment of emerging markets in accordance with ESG and DEI principles. Additionally, in order to support and maintain ESG standards, WB authorities should encourage the efficient raising of finances. Regulators can also encourage company management to focus on ESG objectives and increase awareness of sustainability-related issues. Even more, managers have a responsibility to support ESG and DEI practices in order to improve the sustainable development of their companies. Lastly, regulatory agencies should prioritize creating preventive strategies and procedures for public health emergencies like the pandemic.

We find that companies in high-enforcement countries (the five EU member states) use a higher discount rate (higher percentages of CSR initiatives) to assess goodwill for impairment than do companies in low-enforcement countries (the five WB countries) (Table 4). Additionally, we find that the ESG (DEI)→SEP setup shows stronger upward cash flow management than the other two setups (SEP and ESG→SEP) in both EU (high enforcement) and WB (low enforcement) countries (Table 4). Furthermore, we find a higher positive association (Pearson’s correlation) between the corporate EBIT profitability and the cash flow management for EU state enterprises in comparison to WB firms, particularly for the ESG (DEI)→SEP setup (Table 5). This is consistent with [2,3,4].

There are a few other limitations to this study that suggest areas for future investigation. First, there is doubt about the findings’ generalizability. Subsequent studies must exercise prudence when interpreting the results and mimic emerging markets using varying sample sizes. Similarly, in order to evaluate the long-term sustainability performance of listed organizations, future studies could increase the sample size and lengthen the analysis time. This is significant because making investments in environmental, social, and governance (ESG) demands a long-term outlook, as these investments take time to show up in market value.

Second, in the proposed ESG-DEI-SEP framework, just one input (the latent variable ESG as an independent factor with 11 observed variables), one output (the latent variable SEP as a dependent factor with eight dimensions), and one intervention (the latent variable DEI as an intervention factor with four features) are taken into account (see Figure 2). Expanding the scope of variables may result in more insights.

Third, the operational and market performance stages are the only two serially linked stages that our study models. Models with more than two phases incorporating AI functionality could be used in future research to assess a variety of business performance metrics as key challenges of cloud computing resource allocation in enterprises [48,49,50,51,52]. Fourth, the dynamic links between different eras of business performance are not taken into account in this study. It will be necessary to estimate company performance using a dynamic, two-stage DEA model in order to account for this factor.

Additionally, because of the variety or ambiguity in the data/variables, this study does not address the uncertainty that might arise in the real world. Thus, using fuzzy set theory to address uncertainty might be a productive avenue for future research [50,51,52].

We discover that businesses in the five EU member states assess goodwill for impairment using a greater CSR discount rate than businesses in the five WB countries. Additionally, for suspect firms compared to control firms (EU and WB countries), we observe a stronger positive correlation between the CSR discount rate and the cash flow management [29]. Additionally, we discover that in EU countries, suspicious enterprises demonstrate stronger upward cash flow management compared to control firms.

Finally, from the Table 5 and Table 7 tabular data, we see that for the EU control/suspicious companies, we are more confident of a positive linear correlation between the country’s 7-year mean corporate EBIT profitability and corporate economic growth dynamics, particularly when a social footprint (DEI) is involved (i.e., the ESG (DEI)→SEP setup channel III enhances the positive effect of ESG on economic growth by producing the best results).

Implications for the research community. To examine the mediating role of national cultural values, ethnic characteristics, and diverse corporate workspaces, we conducted a study based on the recommendations provided by the UN/World Bank Group [26,27,28] and the CSR and goodwill impairment [29]. The focus of our investigation was on two categories of companies (control with a positive or stable S&P rating and suspicious with a low or negative S&P rating) and the potential direct and indirect interventions and effects, mainly in the Western Balkans region. Hence, future research should consider metadata that would offer a more general approach with a multi-factor independent intervention study with the firm features company’s age (CA), company’s size (CS), company’s type of industry (CTI), and company’s geographic area/country (CGA) as independent control variables (Figure 3).

Implications for the practitioner. The findings of this study have significant practical implications for the performance of business creation and technology entrepreneurship in various aspects, including financial, operational, supply chain management, corporate social responsibility, and environmentally sustainable practices. Within the Western Balkans region, corporate social responsibility and good corporate governance practices (CGP) are perceived differently. Some view them as acts of philanthropy and a financial burden, while others, particularly progressive organizations, regard them as strategic investments with potential long-term benefits. The paper’s SEM analysis suggests that the leadership of the examined corporations acknowledges the significance of CSR and CGP in relation to the tangible and intangible advantages they offer, which contribute to the improvement of corporate sustainability and economic performance.