Corporate Sustainability: First Evidence on Materiality

TLDR

The study aims to provide evidence on the value implications of sustainability investments. We create a novel dataset by hand‑mapping industry‑specific material sustainability investments into firm‑level ratings using newly available materiality classifications. Firms with strong material sustainability ratings outperform those with weak ratings, while strong immaterial ratings show no performance advantage; these patterns hold in both stock returns and future accounting performance, underscoring the relevance for asset managers integrating sustainability factors.

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.