Sustainable Finance: ESG/CSR, Firm Value, and Investment Returns*

Abstract

We review the burgeoning sustainable finance literature, emphasizing the value implications of ESG (environmental, social, and governance) and CSR (corporate social responsibility) practices. We use a discounted cash flow valuation framework to identify value drivers through which such practices can enhance firm value. Collectively, empirical evidence supports that they increase firm value by motivating employees, strengthening customer-supplier relationships, boosting long-term growth, increasing dividends, and reducing financing costs. Furthermore, more socially responsible firms deliver no higher excess stock returns in the long run. Green bonds neither provide issuers with a price premium nor make investors sacrifice on lower returns. Socially responsible investing (SRI) funds generate no higher riskadjusted long-term returns than non-SRI funds. Finally, we briefly suggest several topics for future research on sustainable finance.

The effect of corporate governance, corporate social responsibility and information asymmetry on the value of Indonesian-listed firms

“…Both the OLS and 2SLS estimates show a significant positive impact of CPH on both measures of firm value, which suggests that CSR enhances a firm’s ability to hire high-quality workers (Flammer and Kacperczyk, 2019) and positively influences firm value (Chang et al , 2022). In addition, the OLS estimate demonstrated a significant negative impact between ETO and TQ, implying that Indonesian firms obtained substantial financial benefits by using high-quality human resource practices.…”

Development of environmental economy and management in the age of AI based on green finance

“…In contrast to Chang et al (2022), Chen et al (2022), Tang (2022), and , it has been proven that the spread of green finance is significantly affected by its accessibility, which is enhanced by the use of advanced automation tools. This means that the importance of green finance for the economy and environmental management in the AI era is determined not by institutions (ESG principles and attractiveness to market actors) but by technology.…”

“…(Huang et al, 2022;Li Z et al, 2022;Liu and Tang, 2022;Pang et al, 2022;Tong J et al, 2022;. Chang et al (2022), Chen et al (2022), Tang (2022), and note that the contribution of green finance to the development of the economy and environmental management is achieved through its particularity of supporting ESG principles and the dissemination of corporate environmental responsibility. However, the existing literature leaves the RQ open and does not sufficiently reveal the specifics of green finance development in the AI era.…”

Green finance, sustainability disclosure and economic implications

“…The positive relationship documented by most studies can be contributed to the mechanisms discussed in subsection 6.1. In addition, Chang, Fu, Jin, and Liem (2022) find that green practice increases firm value by motivating employees, strengthening relationships with suppliers, boosting long-term growth, increasing dividends and reducing financing costs. Nevertheless, this could also be an endogeneity issue, with firms doing well financially being more likely to initiate green efforts.…”