Do financial analysts care about ESG ?

Abstract

This article studies whether financial analysts value Environmental, Social and Governance (ESG) criteria when issuing target prices. Raw results show that analysts issue lower target prices to firms with high ESG scores. We show that this relationship is, in fact, driven both by the existing size bias in ESG data and by the industry-level structure of ESG scores. When controlling for these elements, we actually find that financial analysts are more optimistic about firms that have high E, S, and G scores. Notably, the effect is more pronounced for the environmental (E) score, with a one standard deviation change associated with a 2.09 percentage point increase in the analysts’ target prices implied returns.