Corporate Sustainability: First Evidence on Materiality
TL;DR: In this article, the authors developed a novel dataset by hand-mapping sustainability investments classified as material for each industry into firm-specific sustainability ratings and found that firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues.
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Abstract: Using newly-available materiality classifications of sustainability topics, we develop a novel dataset by hand-mapping sustainability investments classified as material for each industry into firm-specific sustainability ratings. This allows us to present new evidence on the value implications of sustainability investments. Using both calendar-time portfolio stock return regressions and firm-level panel regressions we find that firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues. In contrast, firms with good ratings on immaterial sustainability issues do not significantly outperform firms with poor ratings on the same issues. These results are confirmed when we analyze future changes in accounting performance. The results have implications for asset managers who have committed to the integration of sustainability factors in their capital allocation decisions.
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Figures
Table 4 Robustness Tests 
Table 2 Panel A: Summary Statistics for the Sample in this Study 
Table 5 Panel A: Performance on Immaterial Sustainability Issues 
Table 7 Future Accounting Performance 
Table 6 Performance on Material and Immaterial Sustainability Issues 
Table 3 Panel A: Performance on Material Sustainability Issues- Value Weighted
Citations
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TL;DR: The research suggests that embedding sustainability in core business strategy leads to positive financial and strategic benefits. Sustainable practices include minimizing harm to people and the planet, improving environmental, social, and governance (ESG) performance, and creating value for stakeholders. Further research is needed to explore the benefits of stakeholder engagement, "sticky" corporate ecosystems, and transparency.
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TL;DR: The causal link between ESG performance and financial performance is ambiguous and the relationship is influenced by firm characteristics and the presence of ESG disclosures.
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