DP19282 Is ESG a Sideshow? ESG Perceptions, Investment, and Firms’ Financing Decisions
We study the effects of market ESG perceptions, as proxied by ESG ratings, on public firms’ security issuance and asset accumulation decisions. As many ratings products use restated or backfilled ratings, we focus on point-in-time (PIT) ratings. Higher ESG scores are associated with increases in equity issuance, and decreases in net debt issuance of similar magnitude, driven completely by the “E” component of ESG. There are no effects of ESG assessments on capital expenditures or non-cash asset accumulation, supporting the hypothesis that ESG perceptions are a sideshow for investment. We document that if using a standard ratings product instead of PIT data, researchers might falsely infer that higher ESG ratings lead to
investment and positive asset accumulation, due in particular to the use of ESG scores in standard ratings data products.