Giese et al (2017)

Giese, Guido, Linda-Eling Lee, Dimitris Melas, Zoltan Nagy, Laura Nishikawa.  “How ESG Affects Equity Valuation, Risk, and Performance.”  Foundations of ESG Investing - Part 1, MSCI, November 2017.

From the Executive Summary:  "We examined how ESG information embedded within companies is transmitted to the equity market.  Borrowing the language of central banks describing how monetary policy can affect sset prices and economic conditions, we created three “transmission channels” within a standard discounted cash flow (DCF) model.  We call these the cash-flow channel, the idiosyncratic risk channel, and the valuation channel.  The two former channels are transmitted through corporations’ idiosyncratic risk profiles, whereas the latter channel is linked to companies’ systematic risk profiles…

"For the two idiosyncratic risk channels, high ESG-rated companies tended to show higher profitability, higher dividend yield and lower idiosyncratic tail risks.  We also found that high ESG-rated companies tended to show less systematic volatility, lower values for beta and higher valuations, which verifies the valuation channel."

From the Data and Methodology section:  "All the results shown in this paper are neutralized for industry exposure (through the use of industry-adjusted ESG scores) and size.  We created size-adjusted ESG scores as the residuals from regressing standard MSCI ESG scores on the size exposure in the GEMLT model and an intercept variable."

Link:  https://www.msci.com/www/research-paper/foundations-of-esg-investing/0795306949