ESG ratings: relevant information or misleading clue? Evidence from the S&amp;P Global 1200

Gyönyörová, Lucie; Stachoň, Martin; Stašek, Daniel

doi:10.1080/20430795.2021.1922062

Cited by 60 publications

(22 citation statements)

References 85 publications

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“…The relationship between ESG rating and financial performance and between ESG and market valuation has been widely discussed in previous research. ESG rating measures focus on the long-term risks of a company's operational activities in those three aspects (Gyönyörov a et al, 2021). Complementary to financial reports, companies are increasingly publishing ESG reports, often referred to as sustainability reports or corporate responsibility reports, aiming to disclose their compliance with ESG issues (Murphy and McGrath, 2013).…”

Section: Theoretical Background and Hypothesis Developmentmentioning

confidence: 99%

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Does it pay to deliver superior ESG performance? Evidence from US S&P 500 companies

Ademi

Klungseth

2022

JGR

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Purpose The purpose of this paper is to investigate the relationship between a company’s environmental, social and governance (ESG) performance and its financial performance. This paper also investigates the relationship between ESG performance and a company’s market valuation. This paper provides convincing empirical evidence that delivering superior ESG performance pays off financially. Design/methodology/approach The financial data and ESG scores of 150 publicly traded companies listed in the Standard and Poor’s 500 index for 2017–2020, comprising 5,750 observations, were collected. STATA was used to run a fixed-effect regression and a weighted least squares model to analyze the panel data. Findings The results of the empirical analysis suggest that companies with superior ESG performance perform better financially and are valued higher in the market compared to their industry peers. The ESG rating score impacts both return-on-capital-employed as a proxy for financial performance and Tobin’s Q as a proxy for the market valuation of a company. Originality/value This study contributes to the existing research on ESG performance and financial performance relationship by providing empirical evidence to resolve confusion in the existing literature caused by contradictory evidence. Taking advantage of worldwide crisis caused by the COVID-19 pandemic, this study shows that a positive relationship between ESG performance and a company’s market valuation holds even during times of unexpected crises. Further, this study contributes to business practitioners’ knowledge by showing that ESG aspects constitute highly relevant non-financial information that impact the market’s perception of a company and that investing in sustainability positively impacts a company’s bottom line.

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Section: Theoretical Background and Hypothesis Developmentmentioning

confidence: 99%

“…As the competition among ESG data suppliers increased, the quality of ESG-related products increased. This is evident since the year 2017 (Gyönyörov a et al, 2021). The COVID-19 challenge enables us to investigate whether positive ESG-financial-market company performance holds even during an unexpected crisis.…”

Section: Data Collectionmentioning

confidence: 99%

Does it pay to deliver superior ESG performance? Evidence from US S&P 500 companies

Ademi

Klungseth

2022

JGR

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“…ESG data are not able to convincingly provide the same information (Gyönyörová et al, 2021). External ESG ratings include too much "noise" as they intend to cover the multidimensional profile of firm governance.…”

Section: Literature Review and Hypothesesmentioning

confidence: 98%

Green Bonds’ Reputation Effect and Its Impact on the Financing Costs of the Real Estate Sector

2022

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“…Abhayawansa et al (2021) present the main reason for the divergence as different measurement methods. Gyönyörovà et al (2021) discuss that such a divergence changes from sector to country. Finally, Billio et al (2021) argue that such discrepancies might make the usage of ESG scores in portfolios difficult for fund managers.…”

Section: Literature Reviewmentioning

confidence: 99%

“…However, in the last years, criticism of ESG scores has emerged. These include a large discrepancy between ESG scores from different data providers (e.g., Berg et al (2020); Billio et al (2021); Gyönyörovà et al (2021)), as well as the possible update of ESG scores within 5 years from the data provider (e.g., Thomson Reuters [Refinitiv] scores are only definitive after 5 years). Moreover, ESG scores might be subject to changes due to a release of new ESG information, that is, the release of missing ESG information (e.g., Berg et al (2021); Sahin et al (2022)).…”

Section: Introductionmentioning

confidence: 99%

Environmental, Social, Governance scores and the Missing pillar—Why does missing information matter?

Şahin

Bax

Czado

et al. 2022

Corp Soc Responsibility Env

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Environmental, Social, and Governance (ESG) scores measure companies' performance concerning sustainability and are organized in three pillars: Environmental, Social, and Governance. These complementary non‐financial ESG scores should provide information about companies' ESG performance and risks. However, the extent of not yet published ESG information makes the reliability of ESG scores questionable. To explicitly capture the not yet published information on ESG category scores, a new pillar, the so‐called Missing (M) pillar, is proposed and added to the new definition of the Environmental, Social, Governance, and Missing (ESGM) scores. By relying on the data provided by Refinitiv, we show that the ESGM scores strengthen the companies' risk relationship. These new scores could benefit investors and practitioners as ESG exclusion strategies using only ESG scores might exclude assets with a low score solely because of their missing information and not necessarily because of a low ESG merit.

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ESG ratings: relevant information or misleading clue? Evidence from the S&P Global 1200

Cited by 60 publications

References 85 publications

Does it pay to deliver superior ESG performance? Evidence from US S&P 500 companies

Does it pay to deliver superior ESG performance? Evidence from US S&P 500 companies

Green Bonds’ Reputation Effect and Its Impact on the Financing Costs of the Real Estate Sector

Environmental, Social, Governance scores and the Missing pillar—Why does missing information matter?

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