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The Relationship between Environmental Social Governance Factors and Stock Returns

John R. Evans

Sydney Business School

Dinusha Peiris

ING Investment Management

August 29, 2010

The focus by investment practitioners on the impacts of non-traditional environmental and governance issues has intensified in recent times as a result of global events. This paper examines the relationship between environmental social governance (ESG) factors and financial performance of US listed companies by considering not only impacts on stock return but also stock valuation and operating performance. Using a multifactor framework, this study provides evidence of a significant positive relationship between particular ESG rating criteria and both return on assets and market to book value measures, supporting the stakeholder theory that Corporate Social Performance (CSP) is positive for Corporate Financial Performance (CFP). Analysis also shows that employment conditions are a more relevant influence than other stakeholder criteria and a company’s involvement in more general non-stakeholder related social issues contributes negatively to both operating performance and stock return.

Number of Pages in PDF File: 17

Keywords: SRI, Stock Returns

JEL Classification: G11, G34

working papers series

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Date posted: December 15, 2010  

Suggested Citation

Evans, John R. and Peiris, Dinusha, The Relationship between Environmental Social Governance Factors and Stock Returns (August 29, 2010). Available at SSRN: http://ssrn.com/abstract=1725077 or http://dx.doi.org/10.2139/ssrn.1725077

Contact Information

John R. Evans (Contact Author)
Sydney Business School ( email )
Level 14
175 Liverpool Street
Sydney, New South Wales 2000
Dinusha Peiris
ING Investment Management ( email )
Schenkkade 65
2595 AK The Hague
Feedback to SSRN

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References:  34

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