THE DARK SIDE OF ETHICS IN FINANCE: THE VALUE RELEVANCE OF ESG RATING FOR ITALIAN LISTED COMPANIES.

This research embraces themes of Management Sciences, Empirical Corporate Finance and Behavioral Finance, investigating the correspondence between socially responsible strategies of major Italian listed companies and the willingness of institutional and not investors to undertake sustainable corporate investments. It analyzes how the issuance of ratings involving the Environmental, Social and Governance dimensions (ESG Rating since now) of Italian listed companies may influence their financial performances on stock exchange markets. A marked focus will also be addressed to the attention that investors have paid in recent years to the usage of more than mere technical variables in investment portfolio building. The study highlights on one hand how Italian listed companies have reacted to bearing wave of the subprime mortgages crisis and Italian Sovereign Debt crisis, opting for a socially responsible and sustainable investment policy; on the other hand how institutional investment funds or investors so-called outsiders have adopted the ESG paradigm in their capital allocation. A lot of empirical works have been developed to study the potential relationship between corporate social responsibility activities and other traditional measures of a firm’s success. Moreover, various groups such as the Global Reporting Initiative (GRI) , have paid an increasing attention to the corporate social performances (CSP) of organizations since the 1990s, regardless of their size and location. Hence, a socially responsible and sustainable strategic orientation could both on one hand reduce the risk profile of a company, and on the other hand allow a better fundraising on stock exchange markets. These advantages have created a substrate meant to develop standardized business tools of social reporting as well as the emergence of social stock exchange for “future proofed” bonds’ dealing (e.g. Social Stock Exchange - London). In fact, it would be enough to check the profile of major Italian companies, also medium and small, to understand how they have drawn over time voluntary statements such as Ethical Codes and Social Reports aimed at informing the market about not-accounting information. Such investor behavior, better known as Socially Responsible Investing, has upset the principles of Investment Theory, introducing a new paradigm that takes into account the social and environmental impact of capital allocation as well as the governance aspect if an investment is undertaken by an enterprise.