Authors
Guido Giese, Linda-Eling Lee, Dimitris Melas, Zoltan Nagy and Laura Nishikawa
Many researchers have studied the relationship between companies with strong environmental, social and governance (ESG) characteristics and corporate financial performance. However, a major challenge has been to show that positive correlations provide explanations for the behaviour.
In part 1 of this four part report MSCI focus on understanding how ESG characteristics have led to financially significant effects by examining how ESG information embedded within companies is transmitted to the equity market. Borrowing the language of central banks describing how monetary policy can affect asset prices and economic conditions, MSCI identify three “transmission channels” within a standard discounted cash flow (DCF) model and test each of these transmission channels using MSCI ESG Ratings data and financial variables.