The relationship between ESG ratings and stock market performance
László Vancsura, Tibor Bareith
Abstract
The relationship between companies’ sustainable operation and their financial performance is currently a key area of research. However, the question arises: how does environmental, social, and governance (ESG) assessment affect firms’ economic efficiency? The authors focused on equity markets to investigate the relationship between the top 100 ESG rated US companies and their stock market performance in 2022 and 2023. They investigated whether returns, risk indicators and sectoral affiliation affect ESG scores. The results indicated that the stock real returns have no impact on the ESG score, and ESG valuations have no impact on stock market performance. There was, however, a negative relationship between the standard deviation of returns and ESG scores, which suggests that more stable and less risky companies tend to have a higher ESG ranking than their more volatile counterparts. There was also a significant relationship between sector position and ESG score only for the 2022 dataset.
Keywords
ESG, stock market performance, risk management
