Which Environmental, Social, or Governance (ESG) Activities are More Informative to Stock Prices?

Abstract

While prior literature has investigated the impact of ESG activities on investors and other stakeholders, our paper is the first to disaggregate firms' activities into each of the Sustainability Accounting Standards Board (SASB)’s definition of Material Environmental, Social, and Governance activities and determine which of these ESG activities provide the greatest information content of stock prices. We find that material Social activities provide the greatest stock price informativeness and after further disaggregating each of the ESG classifications we find that both Social Capital and Human Capital activities provide informative stock prices, while Business Model and Innovation activities reduce stock price informativeness. Cross-sectionally, this effect is strengthened by higher levels of institutional ownership, further supporting the idea that material Social activities are important to sophisticated investors. Our results are consistent in a battery of sensitivity analyses.