Value Relevance of Environmental, Social and Government Disclosure
The paper highlighted this week is a tour de force in terms of both a review of pretty much all (as far as I can tell?) the academic literature to date on how governance affects stock prices and a unique new study on the specifics of ESG factors’ impact on stock values.
The authors, Ms. Zuraida Zuraida [Who kindly agreed to allow the posting here, click the link above for the full paper] and colleagues Muhammad Nurul Houqe and Tony Van Zijil have drilled data from 11,455-companies in 38-markets from 2008 to 2012; and conclude? Not only does a good ESG reporting record lead to higher valuation but also the elements of ESG, Environmental, Social and Governance factors, bear upwards individually on company valuations.
They begin by admitting that trying to distill these factors is a jello-to-ceiling-nailing-exercise but the size of the survey and the consistency of the results seem to prove their various hypotheses, viz. that ESG factors should beneficially affect stock prices.
There’s another issue for study though beyond whether companies with fine ESG credentials are worth more than peers with shabbier records. The paper also touches on the much bigger issue of the growing importance of investor access to, and the provision by companies of, Non-Financial Information (NFI). A subject to perhaps follow up on another Sunday?