Corporate Sustainability: First Evidence on Materiality

Khan, Mozaffar; Serafeim, George; Yoon, Aaron

doi:10.2139/ssrn.2575912

Cited by 190 publications

(263 citation statements)

References 49 publications

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“…While prior research suggests that changes in performance on material ESG issues are positively related to changes in future stock returns, while changes in performance on immaterial ESG issues are not correlated with future stock returns (Khan, Serafeim, and Yoon, 2016), it is not clear that these results generalize to a setting where changes in ESG performance are the result of investor activism. As Eccles et al…”

Section: Commissioner Troy Paredes and Director Of The Manhattan Instmentioning

confidence: 73%

Shareholder Activism on Sustainability Issues

Grewal

Serafeim²,

Yoon³

2016

SSRN Journal

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Shareholder activism on sustainability issues has become increasingly prevalent over the years, with the number of proposals filed doubling from 1999 to 2013. We use recent innovations in accounting standard setting to classify 2,665 shareholder proposals that address environmental, social and governance (ESG) issues as financially material or immaterial, and we analyze how proposals on material versus immaterial issues affect firms' subsequent ESG performance and market valuation. We find that 58 percent of the shareholder proposals in our sample are filed on immaterial issues. We document that filing shareholder proposals is effective at improving the performance of the company on the focal ESG issue, even though such proposals nearly never received majority support. Improvements occur across both material and immaterial issues. Proposals on immaterial issues are associated with subsequent declines in firm valuation while proposals on material issues are associated with subsequent increases in firm value. We show that companies increase performance on immaterial issues because of agency problems, low awareness of the materiality of ESG issues, and attempts to divert attention from poor performance on material issues.

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Section: Commissioner Troy Paredes and Director Of The Manhattan Instmentioning

confidence: 73%

Shareholder Activism on Sustainability Issues

Grewal

Serafeim²,

Yoon³

2016

SSRN Journal

Self Cite

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“…21. For a discussion of the relationship between sustainability investments and shareholder value creation, see Khan, Serafeim, and Yoon (2015). 22.…”

Section: Appendix F Percentage Contributions To Specific Risks By Sementioning

confidence: 99%

Hedging Climate Risk

Andersson

Bolton

Samama

2016

Financial Analysts Journal

361

137

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1998-2014. 1 The perceived slowdown has confirmed the beliefs of climate change doubters and fueled a debate on climate science widely covered by the media. This ongoing debate is stimulated by three important considerations.The first and most obvious consideration is that not all countries and industries are equally affected by climate change. As in other policy areas, the introduction of a new regulation naturally gives rise to policy debates between the losers, who exaggerate the costs, and the winners, who emphasize the urgency of the new policy. The second consideration is that climate mitigation has typically not been a "front burner" political issue. Politicians often tend to "kick the can down the road" rather than introduce policies that are costly in the short run and risk alienating their constituencies-all the more so if there is a perception that the climate change debate is not yet fully settled and that climate change mitigation may not require urgent attention. The third consideration is that although the scientific evidence on the link between carbon dioxide (CO 2 ) emissions and the greenhouse effect is overwhelming, there is considerable uncertainty regarding the rate of increase in average temperatures over the next 20 or 30 years and the effects on climate change. There is also considerable uncertainty regarding the "tipping point" beyond which catastrophic climate dynamics are set in motion. 2 As with financial crises, the observation of growing imbalances can alert analysts to the inevitability of a crash but still leave them in the dark as to when the crisis is likely to occur.This uncertainty should be understood as an increasingly important risk factor for investors, particularly long-term investors. At a minimum, the climate science consensus tells us that the risks of a climate disaster are substantial and rising. Moreover, as further evidence of climate events linked to humancaused emissions of CO 2 accumulates and global temperatures keep rising, there is an increased likelihood of policy intervention to limit these emissions. 3 The prospect of such interventions has increased significantly following the Paris Climate Change Conference and the unanimous adoption of a new universal agreement on climate change. 4 Of course, other plausible scenarios can be envisioned whereby the Paris agreement is not followed by meaningful policies. From an investor's perspective, there is therefore a risk with respect to both climate change and the timing of climate mitigation policies. Still, overall, investors should-and some are beginning to-factor carbon risk into their investment policies. It is fair to say, however, that there is still little awareness of this risk factor among (institutional)

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“…For a sustainable future to be possible, it is not sufficient that companies conduct indulgences. Instead, companies should deliver results, that is, succeeding in making sustainability improvements that actually make a difference and that solve the important problems (e.g., Khan et al 2016;Eccles and Serafeim 2013). In Chap.…”

Section: Roadmap To a Restartmentioning

confidence: 99%