Public Sentiment and the Price of Corporate Sustainability

Financial Analysts Journal, Forthcoming

56 Pages Posted: 19 Oct 2018 Last revised: 26 Jan 2020

See all articles by George Serafeim

George Serafeim

Harvard University - Harvard Business School

Date Written: October 12, 2018

Abstract

Combining corporate sustainability performance scores based on environmental, social and governance (ESG) data with big data measuring public sentiment about a company’s sustainability performance, I find that the valuation premium paid for companies with strong sustainability performance has increased over time and that the premium is increasing as a function of positive public sentiment momentum. An ESG factor going long on firms with superior or increasing sustainability performance and negative sentiment momentum and short on firms with inferior or decreasing sustainability performance and positive sentiment momentum delivers significant positive alpha. This low sentiment ESG factor is uncorrelated with other factors, such as value, momentum, size, profitability and investment. In contrast, the high sentiment ESG factor delivers insignificant alpha and is strongly negatively correlated with the value factor. The evidence suggests that public sentiment influences investor views about the value of corporate sustainability activities and thereby both the price paid for corporate sustainability and the investment returns of portfolios that consider ESG data.

Keywords: corporate sustainability, ESG metrics, public sentiment, corporate valuation, investment management

JEL Classification: M4, G14, M2, G12

Suggested Citation

Serafeim, George, Public Sentiment and the Price of Corporate Sustainability (October 12, 2018). Financial Analysts Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3265502 or http://dx.doi.org/10.2139/ssrn.3265502

George Serafeim (Contact Author)

Harvard University - Harvard Business School ( email )

381 Morgan Hall
Boston, MA 02163
United States

HOME PAGE: http://goo.gl/q4cJ5A

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
2,227
Abstract Views
6,659
rank
6,450
PlumX Metrics