Does ESG Negative Screening Work?

59 Pages Posted: 12 Jul 2022 Last revised: 11 Aug 2022

See all articles by Robert G. Eccles

Robert G. Eccles

University of Oxford - Said Business School

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: April 30, 2022

Abstract

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

Eccles, Robert G. and Rajgopal, Shivaram and Xie, Jing, Does ESG Negative Screening Work? (April 30, 2022). Available at SSRN: https://ssrn.com/abstract=4150524 or http://dx.doi.org/10.2139/ssrn.4150524

Robert G. Eccles

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Shivaram Rajgopal (Contact Author)

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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