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ESG Academic Network Roundtable Part II: Focus on Stakeholders


By FactSet Insight  |  May 19, 2022

Recently FactSet held its fourth annual (virtual) ESG Academic Network Roundtable, where leading academics from world-class universities presented environmental, social, and governance (ESG) research findings leveraging FactSet’s Truvalue Labs’ data alongside other datasets. This is the second of two articles highlighting some of the papers presented, extracting the actionable implications for investors and corporates where relevant. You can read the first article here.

Reexamining the Win-Win: Relational Capital, Stakeholder Issue Salience, and the Contingent Benefits of Value-Based ESG Strategies

Previously we summarized how the research of George Serafeim and Aaron Yoon found both direct and indirect uses for Truvalue Labs’ data as it affects stock price. James McGlinch and Witold Henisz of the Wharton School at the University of Pennsylvania take a different approach and focus on valuing stakeholders in relation to firm financial performance, a long-debated topic in their paper, “Reexamining the Win-Win: Relational Capital, Stakeholder Issue Salience, and the Contingent Benefits of Value Based Environmental, Social and Governance (ESG) Strategies.” This is a particularly timely topic considering that many firms claim to have a broad stakeholder (vs. shareholder primacy) focus.

This paper aims to move from the debate as to whether stakeholder sentiment (what they call corporate social performance) contributes to financial performance to exactly “how, where, and when” it does. The authors’ definition of stakeholders includes not only suppliers and customers, but more broadly encompasses employees, communities, regulators, and others. They argue that the value of “relational stakeholder capital” is large, typically offsetting the cost of creating and maintaining those stakeholder relations.

To test this proposition empirically, the authors analyze stakeholder relational capital, measured by Truvalue Labs, against data from Refinitiv on ESG principles and processes, programs, and policies of firms. This addresses part of their goal to weigh the costs and benefits of investment in stakeholder relational capital. In addition, they use Truvalue Labs’ data to weigh issues that firms face based on the attention the issue receives, measured by the number of ESG relevant articles and sentiment score. The number of articles per quarter is especially important as it provides a clear focus on what stakeholder issues are most salient. When combined with the intensity of the controversy, the number of articles serves as a time series weight to the stakeholder sentiment.

This contrasts with the static, pre-existing weighting formulae typically used by other ESG raters. For example, the Wells Fargo cross-selling practices controversy in 2016 (and after) was far more salient than, for example, diversity in its workplace, although some analysts weighted these equally. Truvalue Labs’ weightings are dynamic, based on artificial intelligence and natural-language-based analysis of articles in addition to the number of articles per quarter.

The authors find that stakeholder salience is three times greater for material vs. non-material issues, especially over time. From this data, they can predict revenue growth, efficiency, and gross margins. The “payoff” period for efficiency is one year and for revenue is three years, both at the expense of gross margins. This is in notable contrast to non-material issues where all three are negative. Simply put, it pays to focus on material issues.

The quick takeaway for investors is that this analysis of stakeholder sentiment clearly predicts financial performance, while for corporates, it enables the quantification of competitive analysis against industry peers.

Corporate Resilience and Response to COVID-19

The final paper briefly reviewed here is “Corporate Resilience and Response to COVID-19” by Alex Cheema-Fox, Bridget R. LaPerla, and Hui (Stacie) Wang (all of State Street Associates) and Serafeim. While the study covers only a very short period as it was undertaken at the beginning of the COVID-19 pandemic, it examines how initial responses to COVID-19 affected corporate responses in the pandemic’s very early days.

As we saw in the McGlinch/Henisz study, the authors use stakeholder theory, focusing on customers, employees, and suppliers as the key stakeholders. They hypothesize that firms with high sentiment scores (especially material ones) in this period of major market crisis will outperform their peers with lower scores, as measured by dividend yield, earnings-to-price ratio, book-to-market, market capitalization, return-to-equity, and leverage, among other metrics.

They create a “crisis response variable,” combining human capital, supply chain, and products and services. They used Truvalue Labs’ data to identify when COVID issues affected their company sample of 3,000 global publicly-listed firms based on the sentiment measure, both positive and negative. They then created a “crisis return premium on corporate response.” They find statistically significant results as indicated in the chart below, which controls for industry fixed effect.


This study, performed over a very short timeframe, was made possible because of the daily time series of both positive and negative third-party sentiment provided by the Truvalue Labs’ data. This analysis would be impossible to perform with traditional ESG scores updated annually and primarily relying on company self-reported information, even if augmented by other sources. Weekly or monthly data would not capture the rapid changes in response to extraordinary COVID-induced factors.

What these two studies have in common is that stakeholders matter, particularly when they impact material factors and the long- and short-term financial (and operational) performance of firms.

The FactSet ESG Academic Network has over 120 academics worldwide who use Truvalue Labs’ data in their research having to date produced about 40 papers and published articles.

Download the recording to hear from leading academics as they dive into their ESG research and show how Truvalue Labs’ data can be used to analyze ESG trends and events.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

Truvalue Labs Academic Roundtable


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.