A Pitfall in Ethical Investing: ESG Disclosures Reflect Vulnerabilities, not Virtues
Published in Journal Of Investment Management, Vol. 15, No. 2, (2017), pp. 51–64. Winner, Special Distinction Award, 2017
Recommended citation: Garvey, G. T., Kazdin, J., LaFond, R., Nash, J., & Safa, H. (2017). A pitfall in ethical investing: ESG disclosures reflect vulnerabilities, not virtues. Journal of Investment Management, 15(2), 51-64. https://joim.com/wp-content/uploads/emember/downloads/p0544.pdf
It is widely believed that ESG (Environmental, Social, Governance) investing reduces regulatory and reputational risks. In a large global panel, we find that business ethics controversies and regulatory issues are more likely for firms that disclose a richer set of ESG-friendly policies. The effect is attenuated by controlling for size, industry, and country but remains economically and statistically significant. We also show that some prominent ESG indices favor companies that disclose more ESG policies and as a consequence have greater controversy exposure than an ESG-unaware benchmark.
Recommended citation: Garvey, G. T., Kazdin, J., LaFond, R., Nash, J., & Safa, H. (2017). A pitfall in ethical investing: ESG disclosures reflect vulnerabilities, not virtues. Journal of Investment Management, 15(2), 51-64.