The Effect of Sustainability Reporting on ESG Ratings
by Arthur Luetkemeyer
Abstract
Over the past decade the concept of Environmental, Social, and Governance (ESG) investing has emerged to aid investors to maximize return on investments while simultaneously supporting environmentally and socially friendly methods of production and operation. In this paper I investigate the effect of the quality of sustainability reporting on ESG ratings. I utilize a sample of 100 chemical companies with ESG ratings and sustainability disclosure indexes over a 14-year time period (2007-2020) to analyze the short- and long run effects of sustainability reporting on ESG ratings. Using OLS my regression results suggest that better overall ESG disclosure as well as individual E, S, and G disclosure leads to worse ESG ratings in both the short run and the long run.
Professor Christopher Timmins, Faculty Advisor
Professor Grace Kim, Faculty Advisor
JEL Codes: M14, M40
Bang for Your (Green) Buck: The Effects of ESG Risk on US M&A Performance
by Richard Chen
Abstract
Mergers & Acquisitions (M&A) is a fundamental corporate activity that has not received much attention from an environmental, social, and governance (ESG) perspective. In this paper, I analyze how buyer and target ESG risks affect US M&A performance in both the short and long run as measured by deal valuations and changes in buyer operating metrics, respectively. I utilize a sample of 341 transactions from 2007-2020 with a cumulative value over $3 trillion from Capital IQ where both the buyer and target have available ESG data provided by RepRisk. Utilizing OLS, my results suggest that higher ESG risk causes buyers to pay more and targets to receive less. In the long run, buyer ESG risk is an important determinant of performance. When examining the components of ESG, governance is the most consistently significant, followed by social, then environmental – though it becomes more significant in the long run. Additionally, all three components appear to have some non-linear impacts on M&A performance.
Professor Connel Fullenkamp, Faculty Advisor
Professor Grace Kim, Faculty Advisor
JEL Codes: G34, G14, M14
