The ESG literature suggests that the relationship between a firm's environmental, social, and governance (ESG) performance and a firm's financial performance is positive, but the causal link between these two variables is ambiguous. The results in this study mirrored that sentiment of the ESG literature; thus, the purpose of this article is to frame the causal ambiguity in ESG research that accounts for ambiguous conclusions in ESG literature. This study found that firms with complete Bloomberg ESG ratings had higher abnormal returns than firms without complete ESG ratings, but the actual rating did not correlate with abnormal returns. Similarly, this study found that firms with higher ESG disclosure scores (regardless of whether the disclosures were good or bad) were associated with higher abnormal returns, which further illustrates the ambiguity and suggests transparency as a clarifying factor. While much of the literature notes challenges in ESG research, this study is one of the first that frames the confusing causal link between ESG performance and financial performance as the key conclusion of the study.
Citation: Zach Williams, Heather Apollonio. The causation dilemma in ESG research[J]. Green Finance, 2024, 6(2): 265-286. doi: 10.3934/GF.2024011
The ESG literature suggests that the relationship between a firm's environmental, social, and governance (ESG) performance and a firm's financial performance is positive, but the causal link between these two variables is ambiguous. The results in this study mirrored that sentiment of the ESG literature; thus, the purpose of this article is to frame the causal ambiguity in ESG research that accounts for ambiguous conclusions in ESG literature. This study found that firms with complete Bloomberg ESG ratings had higher abnormal returns than firms without complete ESG ratings, but the actual rating did not correlate with abnormal returns. Similarly, this study found that firms with higher ESG disclosure scores (regardless of whether the disclosures were good or bad) were associated with higher abnormal returns, which further illustrates the ambiguity and suggests transparency as a clarifying factor. While much of the literature notes challenges in ESG research, this study is one of the first that frames the confusing causal link between ESG performance and financial performance as the key conclusion of the study.
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Zach Williams, Heather Apollonio. The causation dilemma in ESG research[J]. Green Finance, 2024, 6(2): 265-286. doi: 10.3934/GF.2024011
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