There is a connection between public sentiment about a company and how the market rewards its corporate social performance, according to George Serafeim, Professor of Business Administration at Harvard Business School.
For the first time, a link has been drawn between public sentiment about a company’s sustainability practices and how that company is valued in the market.
The results are important both for investors searching for under-valued, socially responsible companies, and for companies themselves that believe their sustainability efforts are not being fully rewarded by the market.
In particular, the research shows companies with overall good performance in their Environmental, Social, and Governance (ESG) programs can increase their market value by carefully monitoring public sentiment about those efforts and proactively addressing issues when negative stories arise.
“The positive association between ESG performance and market valuation is stronger for firms with more positive public sentiment momentum,” writes Harvard Business School Professor of Business Administration George Serafeim, the report’s author. “An increase in a firm’s ESG performance has nearly two to three times the effect on a firm’s market valuation for a firm with positive relative to a firm with negative public sentiment momentum.”