The value relevance of SAM's corporate sustainability ranking and GRI sustainability reporting in the European stock markets

Abstract

This paper investigates whether relative corporate sustainability as measured by the SAM sustainability ranking and sustainability reporting in terms of Global Reporting Initiative (GRI) application levels are associated with a higher market valuation. We conduct a value relevance study for the 600 largest European companies with the Feltham and Ohlson valuation model as a reference point. Our results indicate that for the observation period 2001 to 2011, the association between corporate sustainability and market value is positive. The empirical evidence of a positive relationship between GRI reporting and market value is statistically significant in some but not all of the model specifications. We find no evidence of interaction between the value relevance of corporate sustainability and sustainability reporting, nor do we find any positive effect of external assurance on the capital market perception of GRI application levels. Our results support the notion that conducting business in accordance with ethical norms is also a shareholder value‐increasing business strategy. However, it is not possible to verify the information given in sustainability reports through external assurance.

The Value Relevance of Environmental, Social, and Governance Performance: The Brazilian Case

“…These results are similar to those obtained for developed markets [13,[17][18][19], where there was a clear positive and significant relationship between sustainability information and the price of shares. However, unlike most previous studies in which dummy variables were used, such as the publication of social responsibility reports or the inclusion of the company in a sustainability index, in this study we use the three modern ESG pillars and find that investors do not significantly value the three pillars.…”

“…This model has been widely used in the field of CSR research by using information on social responsibility as this additional information [13,[15][16][17][18][19][20][21]. Following, therefore, the existing literature for other markets, in this study we propose the application of Ohlson's model [39] to estimate the value relevance in the São Paulo Stock Exchange of the CSR performance level of the companies listed on it.…”

“…This theory suggests, therefore, that the implementation of sustainability initiatives may not be profitable and, therefore, this is likely to destroy the value of the company. Although the literature on CSR and shareholder value creation provides mixed results [29][30][31], a growing number of studies support the value enhancing theory [13,16,18,19,[32][33][34][35][36].…”

“…However, the potential benefit to a shareholder of the company in which it invests carrying out CSR activities depends on how that information affects the stock market value of the shares [14]. Although most of the existing empirical evidence has obtained results in favour of the value relevance of CSR practices, these studies have focused mainly on the analysis of developed markets in Europe [15][16][17][18] and North America [19][20][21].…”

“…Second, most studies have used as their corporate sustainability indicators the publication of sustainability reports [15][16][17][18][19] or the inclusion of the company in a socially responsible index [13,18,20,21]. These binary variables have a number of disadvantages.…”