Which Corporate ESG News does the Market React to

Using a dataset that classifies firm-level ESG news as positive and negative, we examine how stock prices react to different types of ESG news. We analyze 111,020 firm–day observations for 3,126 companies and find that prices react only to issues identified as financially material for a given industry by sustainability accounting standards, and the reaction is larger for news that is positive, receive more attention, and that is related to social capital issues. We conclude that investors differentiate in their reactions based on whether the news is likely to affect a company’s fundamentals, and therefore their reactions are motivated by a financial rather than a nonpecuniary motive.