ESG News, Future Cash Flows, and Firm Value



We investigate how sell-side analysts adjust their earnings forecasts following negative ESG incidents. We find that after learning about negative ESG news, analysts significantly downgrade their earnings forecasts over all horizons, including long-term horizons. Negative ESG incidents affect earnings forecasts at longer horizons than other types of corporate incidents. The negative revisions of earnings forecasts reflect expectations of lower future sales (rather than higher future costs). Forecast revisions explain most of the negative impacts of ESG incidents on firm value. In Europe, analysts who exhibit greater sensitivity to ESG news provide significantly more precise forecasts than their peers.