The Value Relevance of Environmental, Social, and Governance Performance: The Brazilian Case

Abstract

There is extensive literature on the value relevance of social responsibility for companies that operate in developed countries. However, little is known about the influence of these practices on the price of assets listed on emerging economies, such as Brazil. In this context, the aim of this study is to analyse whether social responsibility activities carried out by companies listed on the São Paulo Stock Exchange during the 2010-2015 period play a significant role in enhancing firm value. Unlike previous studies, we distinguish between the three modern pillars of sustainability: environmental, social, and corporate governance (ESG). Our overall results support the value enhancing theory rather than the shareholder expense theory. However, it is important to note that the results also show that the market does not significantly value the three ESG pillars. Specifically, the market positively and significantly values the environmental practices carried out by companies not related to environmentally sensitive industries. In contrast, the market positively and significantly values the social and corporate governance practices carried out by the companies belonging to these sensitive industries. These findings are relevant for both investors and the managers of these companies, policy makers, customers, and citizens concerned about ESG issues.

Corporate Social Responsibility, Ownership Structure, and Firm Value: Evidence from Korea

“…In a similar vein, Lenz et al [15] find a positive correlation between CSR and firm value (measured as Tobin's Q). Miralles-Quirós et al [19] present a positive correlation between each individual CSR performance measure (i.e., environmental, social, and corporate governance performance variables) and firm value (measured as a firm's share price), which is similar to those reported in ours. These findings are similar to that presented in our analysis.…”

“…Thus, CSR is becoming important in both academia and practice [2][3][4][5][6]. A number of studies suggest that CSR is positively related to firm value [2,4,[7][8][9][10][11][12][13][14][15][16][17][18][19]. Some studies even find a negative relationship between CSR and firm value [20,21].…”

Environmental, Social and Governance (ESG) and Investment Decision in Bangladesh

“…In addition, environmental issues are the most influential element of Indian investors to achieve non-economic investment goals [25]. In contrast, the Brazilian stock market does not reflect the incorporation of environmental issues in investment decision [32]. Irresponsible industrial behaviors contribute to environmental pollution in Bangladesh [47].…”

“…Additionally, social issues are rated more highly than other issues like environmental and governance issues by the Australian investors [50]. In contrast, social issues are not evaluated by stock market investors in Brazil [32]. Globally, there is an accelerating trend among investors towards contemplating the social issues of the companies they invest in.…”

“…A noteworthy starting point to explore sustainable finance is to recognize the ever-changing demands of heterogeneous investors and to understand their preferences regarding ESG-related issues [10,[28][29][30][31]. Empirical research is encouraged on ESG issues in emerging economies, as the dedication of the shareholders to these issues is intrinsic to sustainable development [32,33], and can be conducted by different market players [1]. Although there have been studies of the utilitarian benefits to investors, there is a need for studies on the societal concerns of investors [30], and the individual weightings given to preferences for ESG criteria [34].…”