Daily share prices react only to corporate ESG news identified as financial material by the Sustainability Accounting Standards Board (SASB), a study co-authored by prominent Harvard academic George Serafeim has concluded.
In addition, the recently-published study found that daily share price movements were more pronounced for ESG news that was positive, received more coverage and was related to product impacts – such issues concerning product safety, quality, affordability and access.
On average, the price reaction to positive news was 187 basis points on the day of the news and 241 basis points across a three-day window, while other ESG themes had smaller but still significant impacts, the authors said.
But despite the influence of product characteristics on share prices, the study notes that “ESG data and ratings contains little information about product impacts with most metrics [instead] reflecting operational activities”.
The study is billed as the first to examine how share prices react to different types of ESG news, compared to existing literature on the topic, which was described as focused on whether ESG related-issues as a whole impacted market performance.
It was based on 111,020 unique firm–day observations for 3,126 companies with ESG news between January 2010 and June 2018 provided by TruValue Labs.
Commenting on their findings, Serafeim and co-author Aaron Yoon said that investor actions depended on “whether the news is likely to affect a company’s fundamentals, and therefore their reactions are motivated by a financial rather than a non pecuniary motive”.
The study comes as a separate analysis from Scientific Beta published this week found no evidence that ESG equity strategies generate excess returns or investment alpha. “Our findings do not question that ESG strategies can offer substantial value to investors,” Scientific Beta said. “Instead, they suggest that investors who look for value-added through outperformance are looking in the wrong place.”
However, London Business School academic Ioannis Ioannou and others have urged caution on interpreting those findings, arguing that they were based on research which has not been peer reviewed and remains unpublished.
Separately, Serafeim was named to the board of Liberty Mutual Insurance earlier this week. The Boston-based insurer made headlines recently after its membership of the Principles for Responsible Investment came under review over links to a new Australian coal mine.