Sustainability priorities, corporate strategy, and investor behavior

Abstract

Using a sequential experiment, this study examines whether integration of material environmental, social, and governance (ESG) priorities into corporate strategy impacts investors’ short- and long-term stock price assessments and investment allocation. In our examination, we consider the potential moderating effect of financial performance. We find that integration of ESG priorities into strategy does not have a significant effect on investors’ price assessments or investment allocation. This is true regardless of the trend in the company's financial performance. Our results hold across various demographics and the levels of investment knowledge and investment experience. Investors’ perception of relevance and reliability of material ESG information, however, has a mediating effect on their long-term price assessment and investment allocation. Overall, our findings suggest that any future requirements on disclosure of ESG information by regulators and standard setters should aim to improve investors’ perception of the relevance and reliability of that information.