Impact of Environmental, Social and Governance Initiatives on Firm Value: Analysis Using AI-Based ESG Scores for Japanese Listed Firms

This paper represents the first study to examine the relationship between ESG initiatives and firm value for almost all Japanese listed firms. By constructing our unique AI-based ESG (Environmental Social Governance) scores that have higher coverage than existing ESG scores, we score and analyze firms that have not previously been given ESG scores and provide more robust evidence for the impact of ESG initiatives on firm value. We empirically show that Japanese listed firms engaging in ESG activities have a significantly higher Tobin’s Q and higher volatility. We use the COVID-19 pandemic to eliminate reverse causality in our analysis.