<abstract xmlns="http://www.w3.org/1999/xhtml">

<bold>Research purpose.</bold> The ESG literature supports a positive correlation between a firm’s ESG performance and its financial performance; however, the details of this relationship are ambiguous, which has led to conflicting results in the literature. This article asserts that this ambiguity is largely related to the fact that ESG studies rarely consider the important issue of materiality. This article is an expanded replication of analysis by Williams ---amp--- Apollonio (2022), a study that called for deeper analysis of both materiality and the causal link between ESG ratings and financial performance.
<bold>Design / Methodology / Approach.</bold> This methodology calculates Pearson Correlation coefficients between Bloomberg ESG scores and abnormal returns for S---amp---P 500 firms from 2020 to 2022 after controlling for the material issue of GICS sectors.
<bold>Findings.</bold> The results show no relationship between ESG scores and abnormal returns, and the conclusion is that controlling for GICS sectors is not the methodology that will clarify the presumed positive correlation between ESG performance and financial performance.
<bold>Originality / Value / Practical implications.</bold> This study is one of the few that addresses materiality in ESG ratings. The finding that controlling for GICS sectors does not sufficiently control for materiality is a significant building block for future researchers. This article suggests that more granular categorization of sub-industries using a larger sample than the S---amp---P 500 is likely to be useful future research.
</abstract>

Research purpose. The ESG literature supports a positive correlation between a firm’s ESG performance and its financial performance; however, the details of this relationship are ambiguous, which has led to conflicting results in the literature. This article asserts that this ambiguity is largely related to the fact that ESG studies rarely consider the important issue of materiality. This article is an expanded replication of analysis by Williams ---amp--- Apollonio (2022), a study that called for deeper analysis of both materiality and the causal link between ESG ratings and financial performance.
Design / Methodology / Approach. This methodology calculates Pearson Correlation coefficients between Bloomberg ESG scores and abnormal returns for S---amp---P 500 firms from 2020 to 2022 after controlling for the material issue of GICS sectors.
Findings. The results show no relationship between ESG scores and abnormal returns, and the conclusion is that controlling for GICS sectors is not the methodology that will clarify the presumed positive correlation between ESG performance and financial performance.
Originality / Value / Practical implications. This study is one of the few that addresses materiality in ESG ratings. The finding that controlling for GICS sectors does not sufficiently control for materiality is a significant building block for future researchers. This article suggests that more granular categorization of sub-industries using a larger sample than the S---amp---P 500 is likely to be useful future research.

The Materiality Challenge of ESG Ratings

Economics and Culture

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

{"article-title":"The Materiality Challenge of ESG Ratings"}

Research purpose. The ESG literature supports a positive correlation between a firm’s ESG performance and its financial performance; however, the details of...

The Materiality Challenge of ESG Ratings

Data publikacji: 23 gru 2022

Zakres stron: 97 - 108

Otrzymano: 21 lis 2022

Przyjęty: 05 gru 2022

DOI: https://doi.org/10.2478/jec-2022-0019

Słowa kluczowe
ESG Materiality, Abnormal Returns, Industry Classification

© 2022 Zach Williams, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

The Materiality Challenge of ESG Ratings

Data publikacji: 23 gru 2022

Zakres stron: 97 - 108

Otrzymano: 21 lis 2022

Przyjęty: 05 gru 2022

DOI: https://doi.org/10.2478/jec-2022-0019

Słowa kluczoweESG Materiality, Abnormal Returns, Industry Classification

© 2022 Zach Williams, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Słowa kluczowe
ESG Materiality, Abnormal Returns, Industry Classification