In this part investigations regarding environmental (and other ESG related non-financial) information available for and used by financial analysts, and corresponding forecast accuracy of financial analysts.

Researchers:
Braun, Robin
Cunningham, Gary
Derwall, Jeroen
Hassel, Lars G.
Lundgren, Tommy
Nilsson, Henrik

The research within part B is divided into two areas: Financial outcomes of CSR or ESG and Studies on financial analysts. Several studies are carried out within these areas.

1. Financial outcomes of CSR or ESG

• Do social norms in markets affect capital costs? Empirical Evidence (Derwall and Verwijmeren) We explain different academic theories as to why there could be a relation between CSR and expected returns. We present empirical evidence that several CSR attributes bear a relation to the cost of equity capital. KLD data are used.
• CSR and governance attributes and the cost of debt (Derwall and Verwijmeren and others) We are undertaking a good look at the value-relevance of ESG criteria in the bond market. In this study, we focus on credit ratings and yield spreads associated with bonds of U.S. firms. We seek to understand how these factors affect the risk premium demanded by bond investors. Little research on CSR in the bond area exists and we intend to fill that gap using KLD and possibly Innovest data; GMI, ISS data are used.
• How bad is bad news? Assessing the effects of incidents on firm value. (Lundgren) The aim of this paper is to evaluate how negative incidents are received by financial markets. Using a unique data set from GES containing firm specific negative incidents, and stock market data, we can estimate these effects. By negative incidents we mean unexpected pollution discharge, human rights issues, reports of corruption or bribery, etc. We will use the method of events studies to assess the abnormal returns following the date of information release.
• A model of the sustainable investor - towards application (Lundgren) This paper aims to shed light on the mechanisms and motivations behind sustainable investments. Four different "players" are identified in this context: 1) socially responsible consumers, 2) socially responsible firms, 3) socially responsible investors, and 4) socially responsible portfolio managers. These are all linked together, and the model developed here will try to highlight the relevant interactions that generate sustainable investments.
• Corporate Social Responsibility and Corporate Valuation around the world (Derwall, Braun, and others) Here we focus on the association between all of our ESG data and valuation measures, such as Tobin’s q.  Most of the Tobin’s q studies so far have concentrated on the U.S. area only. All CSR data are used.  The study is ongoing in 2007.
• The valuation implications of corporate governance mechanisms: A review (Jaworski) This research is now reviewing an abundance of studies that implicitly relate corporate governance to “value-drivers” in standard value-based management frameworks. This review is intended to become the first value-oriented review of the literature and will also be useful for teaching purposes.
• Studies on value relevance of ESG for European firms (Hassel) The studies will use GES risk and opportunity data on environment, human rights, stakeholder relations and corporate governance ratings of the Euro top 300 firms. This research is broad and ongoing, focusing on risk, preparedness and performance on several dimensions of ESG.

2. Studies on financial analysts

• Analyst forecast accuracy and non-financial information: The case of environmental and corporate governance related information (Nilsson) Does non-financial (ESG) information in analysts’ reports enhance the prediction accuracy of financial analysts? Data-stream or similar data used.
• Is environmental information availability and environmental information use by analysts related? (Nilsson) This is a study on the relation between environmental disclosures of companies and the related use of environmental information by the financial analysts. Is environmental information material for financial analysts? Themarkets.com data base is used.
• Forecast accuracy and environmental risk/performance (Nilsson) The relation between financial analysts’ forecast accuracy and the environmental/human rights risks and performance ratings is explored. Is Higher/lower accuracy associated with low/high risk (high/low performance) firms? Data-stream or similar data bases are used.
• A comparative study on environmental information in financial analysts’ reports on North American and European firms (Cunningham) North American firms have been found to have higher disclosure levels of environmental information in their annual reports than European firms. Do we find the same pattern and differences in analysts’ reports? Themarkets.com data base for oil/gas and chemical industries in North America and Europe is used. A paper for publication I 2007 can be expected.
• Surveys and CSR and Governance among (UK) analysts (Jaworski) Jaworski is setting up a questionnaire to survey analysts. He maintains a large database of U.K analysts (approx. 1,800). We are brainstorming about the content of these surveys. The survey will be hosted by the ECCE website. The survey research method is used.