CSR engagement and financial performance: The case of Italian unrated ESG small caps

A relevant issue in the corporate sustainability body of literature is how ESG-related information, embedded in a company's disclosure may influence the stock value in the absence of a third parties ESG score rating. This study examines the financial market's sensitivity to corporate social responsibility (CSR)-related information disclosed through public announcements and reports on responsible business conduct by listed Italian small and medium enterprises (SMEs), unrated in environmental, social, and governance (ESG) performance, from January 2020 to February 2023. Our findings reveal a positive and prompt market response to 289 ESG-related price-sensitive news. As a primary novel contribution, we introduce an ESG Engagement Indicator based on textual analysis techniques, revealing that financial market response is strongly and positively associated with CSR initiatives a company announces through public sustainability commitment statements. We performed several additional analyses to elucidate the dependence of market reaction on a firm's individual characteristics and the specific type of ESG news issued by the company. Robustness analyses confirm our main results. These findings might allow SMEs managers to enhance their communication tools for ESG information reporting.