ESG Investing in Uncertainty: Analyzing the Returns of ESG Within Various States of Investor Sentiment
Haverford College. Department of Economics
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This paper examines the relationship between corporate responsibility and stock performance through various levels of fear in the market. I utilize Environmental, Social, and Governance scores (provided by Thomson Reuters Eikon) for measures of corporate responsibility, and the Volatility Index, or VIX (created by the Chicago Board Options Exchange), to quantify levels of fear. Stock performance is measured weekly, with companies from the S&P 500 as my representative sample. Results focus on ESG Total scores and the individual pillar breakdowns for each ESG component. My findings demonstrate that in the presence of considerably higher levels of fear, increases in ESG scores yield positive returns. On the other hand, lower levels of fear resulted in negative returns. My results suggest that there is an association between ESG and stock returns, with the direction being dependent on the level of investor fear in the market.