Good comms of ESG is rewarded by investors: research shows it
Academic and financial data shows that when ESG communication is transparent and highlights actual progress, the market rewards with higher valuations.
The evidence is clear. Here we summarise four studies that point to the business case for better communication of the practical progress of ESG-related initiatives:
1. The "ESG Momentum" Effect
A 2021 meta-analysis by NYU Stern and Rockefeller Asset Management reviewed over 1,000 studies published between 2015 and 2020. It suggests that improvement in a company's ESG performance (communicated clearly) is a key driver of alpha (market-beating returns).
Headline: it’s the trajectory, the evidence of improvement, that is often more valuable to the share price than a high static rating. Investors like to "buy the change." If you communicate that you are successfully moving from "bad" to "good," the market re-rates you before you even arrive at the destination.
2. Reducing "Information Asymmetry"
Studies published in the Journal of Sustainable Finance & Investment indicate that high-quality ESG disclosure reduces stock price volatility.
When a company communicates its ESG progress clearly, it signals to the market that it has a handle on non-financial risks (like carbon taxes or labour challenges). The resultant investor perception of reduced risk lowers the company’s cost of capital and the share price naturally rises.
3. The Valuation Premium
Research by Deloitte & ISS Insights (2023/2024), comparing ESG ratings to trading multiples (like EV/EBITDA), found that companies with high-quality ESG disclosures often trade at a premium relative to their peers.
The Signaling Theory, as its called in the academic literature, suggests that clear ESG reporting acts is a proxy for managerial quality. The result: better ratings.
4. Evidence not just excitement
ESG comms must be skilfully composed because research warns against "abnormal positive tone." A 2024 study on Strategic Tone Management found that when companies use overly flowery or vague language without hard data, analysts and institutional investors tend to treat it as a "red flag" for future risk, which can actually hurt the share price in the long run.
This is just a selection of multiple studies that find investors reward companies that communicate the progress they are making with ESG initiatives, in a way that is convincing and compelling.
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