Review of Financial Economics | 2019
Sustainability priorities, corporate strategy, and investor behavior
Abstract
A growing number of companies have been reporting on their performance in environmental, social, and governance (ESG) areas.1 Environmental, social, and governance reports, often referred to as Sustainability reports or Corporate Social Responsibility (CSR) reports, are normally issued separately from the annual and quarterly financial reports and describe companies’ investments and outcomes in a variety of activities that extend beyond basic compliance with applicable laws and regulations. Depending on the company, ESG reports address topics ranging from carbon emission to water management to diversity to child labor. The increase in the supply of ESG information has paralleled investors’ demand for the same. As the world becomes more developed and more interested in environmental and social issues because of global challenges such as climate change and scarcity of natural resources, investors are increasingly calling for more ESG disclosures. Over 1,700 investors, representing about US $62 trillion in assets under management, have signed the UNbacked Principles for Responsible Investment since their launch in 2006 (UN PRI 2017). BlackRock, the biggest investor in public companies in the world with $6 trillion under management, recently sent a letter to CEOs of public companies stating that they must show how they contribute to society, or risk losing the moneymanagement firm s support (BlackRock 2018). Received: 11 April 2018 | Accepted: 18 April 2018 DOI: 10.1002/rfe.1052