Activities per year
Abstract
This paper uncovers global ESG rating inflation that negates the societal impact of socially responsible investing under information asymmetries. Refinitiv, MSCI IVA, and FTSE ESG ratings are inversely related to sustainable performance because firms’ promises of sustainable performance improvements do not realize up to 15 years in the future. Consequently, socially responsible investors accidentally tilt their portfolios toward firms with high ESG ratings but low sustainable performance. We causally show that this provides cost of capital incentives for firms to inflate their ESG rating. Therefore, the portfolios of socially responsible investors are less sustainable than the market.
| Original language | English |
|---|---|
| Publisher | SSRN |
| Number of pages | 62 |
| DOIs | |
| Publication status | Published - 24 Jul 2022 |
JEL classifications
- g11 - "Portfolio Choice; Investment Decisions"
- m14 - "Corporate Culture; Social Responsibility"
- q56 - "Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth"
Keywords
- cost of capital
- portfolio tilting
- socially responsible investing (SRI)
- promised to realized sustainable performance
Activities
- 1 Organizing or contributing to an event
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Corporate Governance and Risk Management in Financial Institutions 2023
Dennis Bams (Participant / Attendee)
23 Mar 2023 → 24 Mar 2023Activity: Organizing, contributing or attending an event › Organizing or contributing to an event › Academic