Does ESG Negative Screening Work?
59 Pages Posted: 12 Jul 2022 Last revised: 11 Aug 2022
Date Written: April 30, 2022
We revisit the firm value and pricing implications of the negative screening of sin stocks. Unlike prior work, we find that institutional ownership and valuations related to sin stocks are not different from those of other stocks after controlling for differences in fundamentals between sin and non-sin stocks. Sin stocks do not differ in the likelihood of exiting the public market, the cost of raising new equity, and in the announcement returns around negative ESG news relative to non-sin stocks, casting further doubt on whether negative screening hurts sin stocks. However, the cost of new debt is higher for sin stocks. Investors submit more ESG proposals and a larger number of ESG proposals are passed. In sum, evidence for the oft-stated hypothesis that negative screening hurts sin stocks depends on the design the researcher uses.
Keywords: CSR, ESG, exclusion, index exclusion, negative screening, socially responsible investing, firm valuation, performance
JEL Classification: G11, G23, G31, G32, D71
Suggested Citation: Suggested Citation