SOCIALLY RESPONSIBLE INVESTING AND FIRM PERFORMANCE: REVISITING THE EFFECT OF MATERIAL SUSTAINABILITY

The research examines the effect of environmental, social, and governance (ESG) metrics on return on sales (ROS), return on assets (ROA), and stock returns. It also identifies the challenges of past and future research in this area. The Sustainability Accounting Standards Board (SASB) introduced industry-based disclosure for material sustainability issues in each sector. Using the 2014 and the 2018 SASB guidelines, I constructed a data set by mapping sustainability items classified as material to the ESG rating categories for each industry. I focused on the impact of material ESG scores on firm performance measured by accounting financial metrics and stock returns. Material ESG scores are calculated using SASB’s guidelines that identify industry-based disclosures and metrics it believes are most likely to be valuable for investors. SASB provides “material” ESG metrics that are expected to affect a firm’s cash flows, access to finance, and cost of capital. I found that consistent with KSY (2016) findings, material ESG scores based on the 2014 SASB guideline for six sectors and 45 industries are significantly and positively associated with future accounting performance measured by ROS and ROA. However, material ESG scores defined based on the 2018 SASB guidelines with 11 sectors and 77 industries are not significantly related to future accounting performance.Further analysis suggested that the insignificant results are driven by the five newly added sectors under the 2018 SASB guideline. Interestingly, material ESG scores defined based on the original 2014 SASB and the updated 2018 SASB guideline are significant predictors of future stock returns. These results have implications for financial regulators, asset managers, and individual firms committed to integrating sustainability (ESG) metrics in their capital allocation decisions.

Grantor dc:publisher

Temple University. Libraries

Year dc:date.issued

2024

Author dc:creator

• Nordby, Randolph David

Advisor dc:contributor.advisor

• Mao, Connie X.

Committee members dc:contributor.committeemember

• Mudambi, Susan
• Basu, Sudipta, 1965-
• Martin, Gerald S.

• Finance

Statement dc:rights

• IN COPYRIGHT- This Rights Statement can be used for an Item that is in copyright. Using this statement implies that the organization making this Item available has determined that the Item is in copyright and either is the rights-holder, has obtained permission from the rights-holder(s) to make their Work(s) available, or makes the Item available under an exception or limitation to copyright (including Fair Use) that entitles it to make the Item available.

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/20.500.12613/10678

OAI identifier oai:identifier

oai:scholarshare.temple.edu:20.500.12613/10678