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How material is a material issue? Stock returns and the financial relevance and financial intensity of ESG materiality

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  • Costanza Consolandi
  • Robert G. Eccles
  • Giampaolo Gabbi

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. companies included in the Russell 3000 from January 2008 to July 2019 show that not only do ESG rating changes (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 concentration of ESG materiality. The implication is that the equity premium of listed companies is better explained by the concentration of material issues (i.e. the Gini index) than by the ESG momentum.

Suggested Citation

  • Costanza Consolandi & Robert G. Eccles & Giampaolo Gabbi, 2022. "How material is a material issue? Stock returns and the financial relevance and financial intensity of ESG materiality," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 12(4), pages 1045-1068, October.
    • Handle: RePEc:taf:jsustf:v:12:y:2022:i:4:p:1045-1068
    DOI: 10.1080/20430795.2020.1824889
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    Cited by:

    1. Dewan Muktadir‐Al‐Mukit & Firoz Haroon Bhaiyat, 2024. "Impact of corporate governance diversity on carbon emission under environmental policy via the mandatory nonfinancial reporting regulation," Business Strategy and the Environment, Wiley Blackwell, vol. 33(2), pages 1397-1417, February.
    2. Dinh, Minh Thi Hong, 2023. "ESG, time horizons, risks and stock returns," Research in International Business and Finance, Elsevier, vol. 65(C).
    3. Erhemjamts, Otgontsetseg & Huang, Kershen & Tehranian, Hassan, 2024. "Climate risk, ESG performance, and ESG sentiment in US commercial banks," Global Finance Journal, Elsevier, vol. 59(C).

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