By Drew Spangler, CFA*
Investors continue to debate whether environmental, social, and governance (ESG) factors can be used to identify companies that outperform the average. In this paper, we analyse the relationship between corporate sustainability practices and earnings surprise to investigate whether companies pursuing more environmentally friendly business models are more likely to report earnings that exceed market expectations. If it can be shown that sustainability contributes to beating estimates, it would provide an important link between corporate environmental impact and stock price performance and therefore justify the use of sustainability as a component in the investment process.
*The Chartered Financial Analyst (“CFA”) designation is issued by the CFA Institute. CFA candidates must meet one of the following requirements: (1) undergraduate degree and four years of professional experience involving investment decision-making, or (2) four years qualified work experience (full time, but not necessarily investment- related). To receive the CFA designation, candidates must complete the CFA Program which is organized into three levels, each requiring 250 hours of self-study and each culminating in a six-hour exam. There are no ongoing continuing education or experience thresholds necessary to maintain the CFA designation. More information about the designation is available at https://www.cfainstitute.org.