Research Outline

Impact of ESG


Prove or Disprove that strong ESG strategy has impact on stock price in publicly traded companies

Early Findings

Background information
ESG Strategy Effect
  • Companies with stronger ESG records outperform their peers and have less volatility and downside risk.
  • Societe Generale looked at the impact of “high ESG controversy” events on stock performance, and found that two-thirds of the time-shares underperformed the broader market by an average of 12% over the subsequent 2 years.
  • Evidence from the Eurostoxx50 concludes that companies highly rated in ESG report higher returns and lower volatility.
  • Not all research published on this topic supports the notion that ESG factors always lead to better stock returns. There are plenty of variables that can result in varying degrees of success, including elements as simple as time frame, and others.
  • An ISS study has linked ESG performance to profitability
Initial Conclusions
  • Not only is there a general feeling that ESG strategies contribute to stronger financial performance and returns, but also that poor ESG performance or negative activity can have a detrimental effect.
  • In order to visualise the financial impact of an ESG strategy, there are first two important obstacles to overcome
  • The first; 'Measuring ESG Performance' - ESG is an area composed of so many elements, encompassing everything from parental leave and diversity policies to in-house recycling and supply chain relationships, and therefore measurement is not a simple discipline. There are a variety of metrics comprising of methods such as independent rating systems, indexing, and various ESG scores. Further research would determine a suitable method which can be applied to the specific study group.
  • Secondly - Measuring to what extent ESG strategies are effective in increasing ESG performance - Again this is key for helping to analysis the financial impact of ESG strategies.
Further Information
  • McKinset Quarterly Report - 5 ways that ESG creates value.
  • UMEA School of Business, Economics and Statistics - The effect of the ESG core on stock price jumps (Case Study) .
  • Research - ESG Impact on Market Performance of Firms: International Evidence.
  • How Has Covid-19 Changed Institutional Investors' Approach to ESG? - Research paper.