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    Public Sentiment and the Price of Corporate Sustainability
    29 Oct 2018Working Paper Summaries

    Public Sentiment and the Price of Corporate Sustainability

    by George Serafeim
    Public opinions from industry experts are important in the economy but it has not been clear how they affect the valuation of and returns to corporate activities. Using big data and machine learning, this paper analyzes how public sentiment influences the market pricing of firms’ sustainability activities and thereby the future stock returns of portfolios that integrate environmental, social, and governance data.
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    Author Abstract

    Combining corporate sustainability performance scores based on environmental, social, and governance (ESG) data with big data measuring public sentiment about a company’s sustainability performance, I find that the valuation premium paid for companies with strong sustainability performance has increased over time and that the premium is increasing as a function of positive public sentiment momentum. An ESG factor going long on firms with superior or increasing sustainability performance and negative sentiment momentum and short on firms with inferior or decreasing sustainability performance and positive sentiment momentum delivers significant positive alpha. This low sentiment ESG factor is uncorrelated with other factors, such as value, momentum, size, profitability, and investment. In contrast, the high sentiment ESG factor delivers insignificant alpha and is strongly negatively correlated with the value factor. The evidence suggests that public sentiment influences investor views about the value of corporate sustainability activities and thereby both the price paid for corporate sustainability and the investment returns of portfolios that consider ESG data.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: October 2018
    • HBS Working Paper Number: HBS Working Paper #19-044
    • Faculty Unit(s): Accounting and Management
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    George Serafeim
    George Serafeim
    Charles M. Williams Professor of Business Administration
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