Khan, Serafeim, and Yoon (2016)

Khan, Mozaffar, George Serafeim, and Aaron Yoon.  “Corporate Sustainability: First Evidence on Materiality.”  The Accounting Review, November 2016.

From the authors’ abstract: “Using newly-available materiality classifications of sustainability topics, we develop a novel dataset by hand-mapping sustainability investments classified as material for each industry into firm-specific sustainability ratings. This allows us to present new evidence on the value implications of sustainability investments. Using both calendar-time portfolio stock return regressions and cross-sectional return prediction regressions we find that firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues. In contrast, firms with good ratings on immaterial sustainability issues do not significantly outperform firms with poor ratings on the same issues. Further, firms with good ratings on material issues and concurrently poor ratings on immaterial issues perform the best.”

LK comment: This paper seeks to demonstrate the materiality of ESG factors for financial results.  Using guidance from the Sustainable Accounting Standards Board, the authors analyze companies using data from the MSCI KLD STATS database.  

The authors conclude that “firms with strong ratings on material sustainability issues have better future performance than firms with inferior ratings on the same issues. In contrast, firms with strong ratings on immaterial issues do not outperform firms with poor ratings on these issues. Finally, firms with strong ratings on material issues and concurrently poor ratings on immaterial issues have the best future performance. Collectively these results are most consistent with the interpretation that sustainability investments are value-enhancing for shareholders.”

Link:  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575912