We provide evidence that ESG improves shareholder value when employees are satisfied. Using calendar-time portfolio stock returns and firm-level panel regressions, we find that firms with high ratings on both ESG and employee satisfaction significantly outperform those with low ratings on both and with high employee satisfaction alone. Our results are confirmed when we analyze future changes in accounting performance. Overall, results suggest that ESG coupled with employee satisfaction enhance shareholder value and these findings have implications not only for asset managers who integrate ESG factors into their portfolios but also for firm managers who implement ESG practices.​

Keywords: Sustainability; ESG; CSR; Human Capital; Investment Performance
JEL Code: G11; G14; J28; M14