How Material is a Material Issue? Stock Returns and the Financial Relevance and Financial Intensity of ESG Materiality.

29 Pages Posted: 15 May 2020 Last revised: 25 Aug 2020

See all articles by Costanza Consolandi

Costanza Consolandi

University of Siena

Robert G. Eccles

University of Oxford - Said Business School

Giampaolo Gabbi

SDA Bocconi School of Management

Date Written: April 12, 2020

Abstract

This paper investigates the role of the intensity and relevance of ESG materiality in equity returns. Adopting the classifications of materiality provided by the Sustainability Accounting Standards Board (SASB), the paper introduces the concept of the financial relevance and financial intensity of ESG materiality in order to estimate how it explains equity returns. The results of the analysis, based on a large sample of U.S. compa-nies included in the Russell 3000 from January 2008 to July 2019 show that not only do ESG rating change (ESG momentum) have a consistent impact on equity performance, but also that the market seems to reward more those companies operating in industries with a high level of ESG materiality concentration. The impli-cation is that the equity premium of listed companies is better explained by the concentration of material is-sues (i.e., the Gini index) than by the ESG momentum.

Keywords: SASB, Nonfinancial Information, ESG Materiality, Financial Relevance of ESG Materiality, Financial Intensity of ESG Materiality, Fama-French, CAPM

JEL Classification: G11, G12, G14, C33, M14, D81

Suggested Citation

Consolandi, Costanza and Eccles, Robert G. and Gabbi, Giampaolo, How Material is a Material Issue? Stock Returns and the Financial Relevance and Financial Intensity of ESG Materiality. (April 12, 2020). Available at SSRN: https://ssrn.com/abstract=3574547 or http://dx.doi.org/10.2139/ssrn.3574547

Costanza Consolandi (Contact Author)

University of Siena ( email )

Via Banchi di Sotto, 55
Siena, 53100
Italy

Robert G. Eccles

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Giampaolo Gabbi

SDA Bocconi School of Management ( email )

Via Bocconi 8
Milan, Milan 20136
Italy

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