ESG Incidents and Shareholder Value
Sustainable investing has its critics, but it seems to become a regular part of the markets. The novel research of Simon Glossner (2021) studies new ESG metric — ESG incidents (negative events related to pollution, poor social aspects, social or governance scandals and so on). Using incidents news, the author provides interesting results that mainly support proponents of sustainable investing. Poor ESG performance proxied by incidents predicts more incidents in the future, lower profitability which should subsequently spill to negative performance in future. For example, portfolios consisting of negative incidents stocks significantly underperform the market for both US and European stocks. Therefore, this research paper is a compelling addition to the literature that, apart from social aspects, connects ESG also with performance.
