ESG activities and firm cash flow

I measure the influence of ESG activities on Free Cash flow to the Firm and Free Cash Flow to Equity. I find that ESG activities primarily benefit the cash flows to creditors of firms in developed markets. The ESG effect predominantly comes from the excess spending of the firm on communicating how it integrates the economic (financial), social and environmental dimensions into its day-to-day decision-making processes. For developed market firms, the additional factor of excess spending on conditions for the workforce plays a role in boosting Free Cash Flow to the Firm.

Automated summary

I study the impact of ESG activities on Free Cash Flow to the Firm and Free Cash Flow to Equity. My findings show that ESG activities primarily benefit the cash flows to creditors of firms in developed markets. This effect is mainly driven by the excessive spending of firms on communicating their integration of economic, social, and environmental dimensions into their decision-making processes. Moreover, for developed market firms, excessive spending on workforce conditions also plays a role in boosting Free Cash Flow to the Firm.