ESG and aggregate disagreement

This paper investigates the role of aggregate disagreement in the relationship between environmental, social, and governance (ESG) scores and future stock returns in the United States (US), European Union (EU), and United Kingdom (UK). We find that firms with high ESG scores are likely to have highe...

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Bibliographic Details
Published inJournal of international financial markets, institutions & money Vol. 92; p. 101972
Main Authors Luo, Di, Farag, Hisham
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.04.2024
Subjects
Aggregate disagreement
ESG
Stock returns
ESG
G12
Stock returns
Aggregate disagreement
G14
G30
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Summary:This paper investigates the role of aggregate disagreement in the relationship between environmental, social, and governance (ESG) scores and future stock returns in the United States (US), European Union (EU), and United Kingdom (UK). We find that firms with high ESG scores are likely to have higher exposure to aggregate disagreement than firms with low ESG scores because of the divergence of opinions about long-term earnings growth. Consistent with our conjecture, the results suggest that when aggregate disagreement is high, a profitable trading strategy is to long firms with low ESG scores and to short those with higher ESG scores. Our results have clear implications for the growing debate over ESG investment strategies. •We investigate the role of aggregate disagreement in ESG premiums.•ESG premiums are only significant when disagreement is high.•Our study has clear implications in the debate on ESG investments.
ISSN:1042-4431
1873-0612
DOI:10.1016/j.intfin.2024.101972