The impact of the ESG disclosure on sell-side analysts’ target prices: The new era post Paris agreements

• Published in: Research in international business and finance 2023-01, Vol.64, p.101827, Article 101827
• Main Authors: Bolognesi, Enrica, Burchi, Alberto
• Format: Article
• Language: English
• Subjects: Environment social governance; ESG disclosure; Paris agreements; Sell-side analyst
• ISSN: 0275-5319; 1878-3384
• DOI: 10.1016/j.ribaf.2022.101827

We examine whether the ESG disclosure is a value driver for sell-side analysts, focusing on the largest 3000 US listed firms between 2012 and 2020. ESG represents Environmental factors, long-term Social factors, and Governance issues. These factors affect a community’s long-term sustainability and serve to guide the broader financial markets, increasingly oriented towards sustainable investing. Specifically, we question whether firms exhibiting higher disclosure scores show higher target prices. Moreover, we investigate the impact of the 2015 Paris agreements addressing climate change on stock’s evaluations. We find that: (1) analysts recognize a premium for firms more engaged in ESG transparency (2) before the Paris agreements this premium is mainly driven by Governance disclosure; (3) after the event this premium is also driven by Environmental disclosure. To the extent that we control for different model specifications, our findings suggest that ESG disclosure is a strategic tool for firms to create value. [Display omitted] •The study investigate whether the ESG disclosure is a value driver for sell-side analysts.•We focus on the target prices of the largest 3000 US listed firms between 2012 and 2020.•We investigate the impact of the 2015 Paris agreements addressing climate change on stock’s evaluations.•We focus on the ESG score and on its three specific pillars (Environment, Social, and Governance).•We find that analysts recognize a premium for firms more engaged in ESG transparency.