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

Abstract

There is extensive literature on the value relevance of social responsibility for companies that operate in developed countries. However, little is known about the influence of these practices on the price of assets listed on emerging economies, such as Brazil. In this context, the aim of this study is to analyse whether social responsibility activities carried out by companies listed on the São Paulo Stock Exchange during the 2010–2015 period play a significant role in enhancing firm value. Unlike previous studies, we distinguish between the three modern pillars of sustainability: environmental, social, and corporate governance (ESG). Our overall results support the value enhancing theory rather than the shareholder expense theory. However, it is important to note that the results also show that the market does not significantly value the three ESG pillars. Specifically, the market positively and significantly values the environmental practices carried out by companies not related to environmentally sensitive industries. In contrast, the market positively and significantly values the social and corporate governance practices carried out by the companies belonging to these sensitive industries. These findings are relevant for both investors and the managers of these companies, policy makers, customers, and citizens concerned about ESG issues.