How ESG Issues Become Financially Material to Corporations and Their Investors

ArXiv ID: ssrn-3482546 “View on arXiv”

Authors: Unknown

Abstract

Management and disclosure of environmental, social and governance (ESG) issues have received substantial interest over the last decade. In this paper, we outlin

Keywords: ESG, Sustainable Investing, Corporate Governance, Risk Management, Equity

Complexity vs Empirical Score

• Math Complexity: 2.0/10
• Empirical Rigor: 3.0/10
• Quadrant: Philosophers
• Why: The paper presents a conceptual framework on the pathways of ESG issues becoming financially material, lacking advanced mathematical models or statistical derivations. Empirical evidence is referenced but not derived from original backtests or datasets, relying more on literature review and case studies.

  flowchart TD
    A["Research Goal: Determine<br>ESG Financial Materiality"] --> B["Key Methodology:<br>Multi-Industry Regression Analysis"]
    B --> C{"Data Inputs"}
    C --> C1["Financial Data:<br>Cost of Equity & ROA"]
    C --> C2["ESG Scores:<br>Environmental, Social, Governance"]
    C --> C3["Control Variables:<br>Size, Leverage, Growth"]
    D["Computational Process:<br>Time-Panel Regression"] --> E["Key Findings/Outcomes"]
    C1 --> D
    C2 --> D
    C3 --> D
    E --> E1["Sector-Specific Materiality:<br>Varies by Industry"]
    E --> E2["Strong Governance<br>Universally Reduces Risk"]
    E --> E3["Low ESG = Higher<br>Cost of Equity Capital"]