Corporate Purpose and Value: Evidence from a Novel Measure of Environmental Awareness
54 Pages Posted: 19 Sep 2019 Last revised: 2 Oct 2020
Date Written: October 1, 2020
We develop a novel metric of environmental corporate social responsibility (CSR) rivalry capturing the sustainability engagements of a firm relative to its “green” and “toxic” peers. We document that our measure has superior predictive power about firms’ future pollution levels when compared to alternative unitary environmental CSR scores. Our results show that firms with superior relative environmental performance exhibit higher sales growth, profitability, corporate valuation, and future stock returns, suggesting that firms compete in the market for environmental corporate responsibility ratings and that relative – in addition to unitary – environmental CSR metrics are linked to financial performance. We conclude by generalizing our findings to the broader domain of relative corporate social responsibility (CSR) engagements, documenting that environmental ratings drives the relation between a firm overall relative social profile and valuation.
Keywords: corporate social responsibility; ESG (environmental, social, governance) performance; KLD data; ratings; performance measurement; competitive advantage; reputational capital; sustainability
JEL Classification: M14; G30; G32
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