ESG and Equity Performance in Private Market, Primary Market, and Secondary Market

In this article, the authors analyze the role of ESG characteristics in equity performance at both the firm and sector levels. They also construct a comprehensive data set to analyze and link the ESG role in the private, primary, and secondary markets. They find that non-green equity outperforms green equity in both private and secondary markets. In the primary market, the non-green IPOs are issued at a discount, relative to green IPOs. Their analysis shows that green equity is relatively overvalued, relative to non-green equity at the time of the IPOs. Sector-level ESG information dominates firm-level ESG information in explaining the outperformance of non-green firms in both private and secondary markets. The valuation/change in cash multiple at IPO verifies the higher valuation of green equity relative to that of non-green equity. ESG characteristics of PE firms, when being evaluated at the IPO, are conditional on the healthy financial fundamentals of PE firms.