Student or educator? Sign up with your school email and get 6 months of Pro free.
CoChat
Sign Up
Cited by 53Corporate Social Responsibility ReportingFinancial Markets and Investment StrategiesSustainable Finance and Green Bonds

The DOI matches its Crossref record; 25 of the 25 references it cites were found in a registry or an index.

ESG Confusion and Stock Returns: Tackling the Problem of Noise

Open access
Berg, Florian, Kölbel, Julian, Pavlova, Anna, Rigobon, Roberto·2021·SSRN Electronic Journal
DOI 10.2139/ssrn.3941514
Open this paper in CoChat — free account

Abstract

How strongly does ESG (environmental, social and governance) performance affect stock returns? Answering this question is difficult because existing measures of performance, ESG ratings, are noisy. To tackle the bias, we propose a noise-correction procedure, in which we instrument ESG ratings with ratings of other ESG rating agencies, as in the classical errors-in-variables problem. The corrected estimates demonstrate that the effect of ESG performance on stock returns is stronger than previously estimated; the standard regression estimates of ESG ratings’ impact on stock returns are biased downward by about 60%. Our dataset includes scores of eight ESG rating agencies for firms located in North America, Europe, and Japan. We determine which agencies’ scores are valid instruments (not all of them are) and estimate the noise-to-signal ratio for each ESG rating agency (some of which are very large). Overall, our results suggest that it is advantageous to rely on several complementary ratings. In our sample, stocks with higher ESG performance have higher expected returns. Our model provides several explanations for this finding.

Overview

Integrity signals

Registry

Crossref · 10.2139/ssrn.3941514

Cites

25 of 25 references verified0 citation errors · 0 not checkable

Statistics

Recomputing p-values needs the paper’s full text.

Verification

Claims the paper makes

We couldn’t retrieve this paper’s full text, so its claims and self-check weren’t run. The registry and citation checks still apply.

Citations

Cites

Research works printed but not linked: 8

  1. Rui Albuquerque, 2019, Corporate social responsibility and rm risk: Theory and empirical evidence, Management Science, 65
  2. Ulrich Atz, 2022, Does sustainability generate better nancial performance? Review, meta-analysis, and propositions, Journal of Sustainable Finance and Investment (Forthcoming)
  3. Beck Van Der, Philippe, 2021, Flow-driven ESG returns, Working Paper
  4. Florian Berg, 2021, Is history repeating itself ? The (un)predictable past of ESG ratings, Working Paper, ECGI Available at
  5. Marcia Cornett, 2016, Greed or good deeds: An examination of the relation between corporate social responsibility and the nancial performance of U.S. commercial banks around the nancial crisis, Journal of Banking & Finance, 70
  6. Robert Heinkel, 2001, The eect of green investment on corporate behavior, Journal of Financial and Quantitative Analysis, 36
  7. George Karolyi, 2023, Understanding the global equity greenium
  8. Karl V Lins, 2017, Social capital, trust, and rm performance: The value of corporate social responsibility during the nancial crisis, Journal of Finance, 27

Cited by

See all 53

Metadata

Authors
Berg, F., Kölbel, J., Pavlova, A., & Rigobon, R.
Affiliations
  • Massachusetts Institute of Technology (US)
  • Centre for Economic Policy Research (GB)
Corresponding author
Pavlova, Anna
ORCID
Pavlova, Anna
Venue
SSRN Electronic Journal
Publisher
Elsevier BV
Published
2021
ISSN
1556-5068 (ISSN-L)
DOI
10.2139/ssrn.3941514
OpenAlex
W3209120250
Cited by
53
References
25
Citations by year
2026: 6 · 2025: 12 · 2024: 9 · 2023: 15 · 2022: 9 · 2021: 2
Type
posted content
Language
en
Open access
Locations
SSRN Electronic Journal (publishedVersion)
Topics
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Corporate Social Responsibility Reporting
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
  • Social Sciences › Economics, Econometrics and Finance › Finance › Sustainable Finance and Green Bonds
Keywords
ESG ratings, stock returns, ESG performance, measurement noise, measurement error models, assessment validity, noise correction, ESG rating agencies, noise-to-signal ratio, expected returns, ESG investing

About these checks

Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.

Statistics and arithmetic are recomputed, not judged.

Confidence bands are shown only for fields calibrated on our annotated test set. None is calibrated yet, so no band is shown.

What counts as a claim ›How we measure confidence ›How we check this ›

Are you an author, or do you see a problem with this page? Request a review

Data sources

Bibliographic data: Semantic Scholar, OpenAlex, Crossref.

Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).

Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.