Sell-Side Analysts’ Assessment of ESG Risk

63 Pages Posted: 20 Sep 2022 Last revised: 14 Feb 2025

See all articles by Min Park

Min Park

University of Kansas - Accounting and Information Systems Area

Aaron Yoon

Northwestern University - Department of Accounting Information & Management

Tzachi Zach

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Date Written: September 7, 2022

Abstract

We assess whether and how financial analysts incorporate information about downside ESG risks. Using a unique dataset on firm-day level negative ESG incidents, we find that analysts’ outputs (i.e., stock recommendations, EPS forecasts, and target prices) are associated with negative future ESG risk events, especially those that are financially material. Further investigation suggests that analysts incorporate ESG risks not only through adjusting future cash flow expectations (i.e. the “numerator”), but also through adjusting discount rates (i.e., the “denominator”). Overall, our results highlight the ability of financial analysts to synthesize and integrate ESG risks into their research.

Keywords: ESG; sell-side analysts; ESG risk

Suggested Citation

Park, Min and Yoon, Aaron and Zach, Tzachi, Sell-Side Analysts’ Assessment of ESG Risk (September 7, 2022). Available at SSRN: https://ssrn.com/abstract=4211968 or http://dx.doi.org/10.2139/ssrn.4211968

Min Park

University of Kansas - Accounting and Information Systems Area ( email )

1654 Naismith Drive
Lawrence, KS 66045
United States

Aaron Yoon (Contact Author)

Northwestern University - Department of Accounting Information & Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Tzachi Zach

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States
614-292-4101 (Phone)

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