Does ESG Matter to Investors?

We examine the manner by which a third-party assessment of a firm’s relative ESG attractiveness affects investor demand for the equity of the firm in the presence of new information. Utilizing an event study methodology, with credit rating change events as proxies for new positive and negative information, we find evidence supporting a High ESG score as a significant factor in how investors respond to new positive information. Specifically, after controlling for relevant firm factors and fixed-effects, we find that the highest quartile of ESG scores amplifies the positive stock-price reaction to credit rating upgrades by 130 basis points, providing evidence of confirmation bias