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2023 | OriginalPaper | Chapter

9. The Impact of ESG Score and Controversy on Stock Performance

Authors : Paola Brighi, Antonio Carlo Francesco Della Bina, Valeria Venturelli

Published in: New Challenges for the Banking Industry

Publisher: Springer Nature Switzerland

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Abstract

Using an extensive international dataset based on Refinitiv environmental, social, corporate governance (ESG), and controversies scores, this chapter contributes investigating whether a high overall ESG score improves firm value and decreases risk and to what extent ESG controversies may negatively affect a firm’s financial performance. We find strong evidence of an improvement in value and risk associated with a better ESG score. Results are confirmed in the case of every single E, S, and G pillar. Findings also suggest that firms facing adverse ESG events experience a significant negative effect on value and risk. Our results are robust to different value and risk variables specifications and highlight that controversies affect more financial firms and emerging markets.

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Appendix
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Footnotes
1
For a detailed explanation on the data process and scores calculation methodology see: Refinitiv (2021), Environmental, social, and governance (ESG) scores from Refinitiv, https://​www.​refinitiv.​com/​en/​sustainable-finance/​esg-scores.
 
2
Environmental controversies include resource use issues, social controversies deal with a firm’s misbehaviors connected to the community, human rights, product responsibility, and workforce topics and corporate governance controversies involve management compensation and conflicts with shareholders negative news.
 
3
Data for (Rm,t - Rf,t), SMBt, HMLt, RMWt, CMAt, and the US one month T-bill rate used for the regional five-factor model are from Kenneth French’s website: https://​mba.​tuck.​dartmouth.​edu/​pages/​faculty/​ken.​french/​data_​library.​html.
 
4
One standard deviation increases in the overall ESG score expressed on a percent basis significantly increases market-to-book ratio by 0.7044 (20,70% of the corresponding standard deviation in the market-value variable) and significantly decreases idiosyncratic risk and total risk by—0.0254 and—0.0328 (21,16% and 18,02% of the corresponding standard deviations in the idiosyncratic and stock volatility variables).
 
5
The marginal mean values of market-to-book ratio, idiosyncratic risk and total risk in the presence of controversies (Dummy Controversy = 1) and in the absence of controversies (Dummy Controversy = 0) in models (1), (4) and (7) are: 2.8262 and 2.9685; 0.1975 and 0.1908; 0.3753 and 0.3651, respectively.
 
6
In not-tabulated results, we found that firms with a recent controversy have a current (past) average ESG score of 0.5245 (0.5097) and firms with no controversies have a current (past) average ESG score of 0.3689 (0.3648).
 
7
Results are available upon request to the authors.
 
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Metadata
Title
The Impact of ESG Score and Controversy on Stock Performance
Authors
Paola Brighi
Antonio Carlo Francesco Della Bina
Valeria Venturelli
Copyright Year
2023
Book
New Challenges for the Banking Industry

Print ISBN: 978-3-031-32930-2

Electronic ISBN: 978-3-031-32931-9

Copyright Year: 2023

DOI
https://doi.org/10.1007/978-3-031-32931-9_9