The value of diversification: ESG and investment in controversial industries

Cansu Iskenderoglu

Finance Research Letters, 2025, vol. 76, issue C

Abstract: This paper investigates the impact of Environmental, Social, and Governance (ESG) disclosure on the value of diversification and how investment in controversial industries (sin and energy) by conglomerate firms affects their ESG scores and valuations. I find that conglomerates with higher ESG scores have higher diversification values. Following an investment in controversial industries, conglomerate firms experience a significant decline in their ESG scores and valuations. Moreover, the negative impact of investments in con-troversial industries on the value of diversification is mitigated by higher ESG disclosure. After the Paris Agreement, in high ESG awareness period, excess values of conglomerates with higher ESG scores increase, indicating a causal effect.

Keywords: Environmental, social, governance (ESG); Corporate social responsibility (CSR); Diversi- fication; diversification discount; Sin industries; Energy sector (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 L21 M14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:76:y:2025:i:c:s154461232500220x

DOI: 10.1016/j.frl.2025.106956

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