The Relationship between Environmental Social Governance Factors and Stock Returns

17 Pages Posted: 15 Dec 2010

See all articles by John R. Evans

John R. Evans

Centre for Analysis of Complex Financial Systems

Dinusha Peiris

ING Investment Management

Date Written: August 29, 2010

Abstract

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.

Keywords: SRI, Stock Returns

JEL Classification: G11, G34

Suggested Citation

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

John R. Evans (Contact Author)

Centre for Analysis of Complex Financial Systems ( email )

PO Box 363
Summer Hill, 2130
Australia

Dinusha Peiris

ING Investment Management ( email )

Schenkkade 65
2595 AK The Hague
Netherlands

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