Public Sentiment and the Price of Corporate Sustainability

George  Serafeim

Working Paper | HBS Working Paper Series | 2018

Public Sentiment and the Price of Corporate Sustainability

Abstract

Combining corporate sustainability performance scores based on environmental, social, and governance (ESG) data with big data measuring public sentiment about a company’s sustainability performance, I find that the valuation premium paid for companies with strong sustainability performance has increased over time and that the premium is increasing as a function of positive public sentiment momentum. An ESG factor going long on firms with superior or increasing sustainability performance and negative sentiment momentum and short on firms with inferior or decreasing sustainability performance and positive sentiment momentum delivers significant positive alpha. This low sentiment ESG factor is uncorrelated with other factors, such as value, momentum, size, profitability, and investment. In contrast, the high sentiment ESG factor delivers insignificant alpha and is strongly negatively correlated with the value factor. The evidence suggests that public sentiment influences investor views about the value of corporate sustainability activities and thereby both the price paid for corporate sustainability and the investment returns of portfolios that consider ESG data.

Keywords: sustainability; ESG; ESG (environmental, social, governance) performance; asset pricing; investment management; investment strategy; big data; Machine learning; environment; human capital; corporate governance; Environmental Sustainability; Corporate Governance; Performance; Public Opinion; Asset Pricing; Investment; Strategy; Value;

Language: English

Format: Print

56 pages

SSRN Read Now

Citation:

Serafeim, George. "Public Sentiment and the Price of Corporate Sustainability." Harvard Business School Working Paper, No. 19-044, October 2018.

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Public Sentiment and the Price of Corporate Sustainability

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