Top-Down Sustainability Analysis: How Governance is Related to Alternative ESG

Abstract

We explore the relationship between governance variables and a top-down artificial intelligence (AI)-based measure of a firm’s net impact on the environment, society, health, and knowledge. Employing a sample of large US and European firms, we find that more concentrated ownership is associated with lower net impact, while higher institutional ownership, younger boards, and more international boards are associated with higher net impact. Additionally, we find that firms in more stakeholder-oriented countries have higher net impact. The net impact variable is weakly correlated with traditional bottom-up ESG measures. This suggests that AI-based sustainability analysis could work as a complement to traditional measures.