CSR and Market Valuation

Do socially responsible firms benefit from ethical goodwill? On the one hand, taking externalities into account can be a competitive disadvantage. On the other hand, financial benefits may result from ethical behavior. Thanks to a worldwide dataset of ESG ratings (MSCI ESG ratings), we examine the relationship between a firm’s CSR rating and its shareholder value. After controlling for industry, region, year and R&D, we observe, contrary to mainstream empirical studies, strong evidence of a negative impact of responsible behavior on corporate market value. More precisely, environmental performance was penalized by investors over the 2005-2009 period, whereas involvement in human capital seems to have been valued by the market.
Keywords: Corporate Social Responsibility, ESG Rating, Firm valuation, Tobin’s q
JEL classification: G11, G12