ESG and Stock Market Performance: A Longitudinal Analysis of Annual Stock Returns and Volatility With Insights From the COVID-19 Pandemic

Abstract

This study examines the impact of Environmental, Social, and Governance (ESG) performance on stock market outcomes by analyzing annual stock returns and volatility for 9,117 global publicly listed firms from 2011 to 2022, utilizing ESG ratings from Refinitiv as a proxy. It also assesses the influence of ESG performance on stock price recovery during the COVID-19 pandemic. Our findings reveal that firms with higher ESG ratings experience lower annual stock returns, indicating a potential reduction in stock market performance. In contrast, higher ESG ratings are associated with reduced stock volatility, suggesting a lower risk profile. However, firms with higher ESG ratings exhibited slower recovery times post-pandemic, challenging the notion that high ESG performance enhances resilience during economic crises. These mixed results contribute to the ongoing debate in existing literature, highlighting the contextual nature of ESG benefits and underscoring the need for more consistent ESG measurement practices and further research on ESG’s impact across different market conditions.