Material ESG Alpha: A Fundamentals-Based Perspective
What is the link between changes in ESG scores and future stock performance? The question is a critical one as investors and firms are increasingly mindful that environmental, social, and governance (ESG) issues can have a material impact on corporate value creation. The need to identify material ESG issues has fostered an ecosystem of standard-setting […]
Byung Hyun Ahn is a Senior Researcher at Dimensional Fund Advisors; Panos N. Patatoukas is a Professor and the L.H. Penney Chair in Accounting at the University of California Berkeley Haas School of Business; and George S. Skiadopoulos is a Professor at Queen Mary University of London and the University of Piraeus. This post is based on their article forthcoming in The Accounting Review. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita; How Much Do Investors Care about Social Responsibility? (discussed on the Forum here) by Scott Hirst, Kobi Kastiel, and Tamar Kricheli-Katz; and Does Enlightened Shareholder Value Add Value? (discussed on the Forum here) by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita.
What is the link between changes in ESG scores and future stock performance? The question is a critical one as investors and firms are increasingly mindful that environmental, social, and governance (ESG) issues can have a material impact on corporate value creation. The need to identify material ESG issues has fostered an ecosystem of standard-setting organizations, rating agencies, and index providers. The materiality framework and industry-specific disclosure standards developed by the Sustainability Accounting Standards Board (SASB) are part of the foundation of this ecosystem.
