Punishment by ESG: The Impact of Negative Environmental, Social, and Governance News on Stock Returns
Open Access
Author:
Adeseyoju, Ronnie
Area of Honors:
Accounting
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
Samuel Burton Bonsall, IV, Thesis Supervisor Jason Lunn, Thesis Honors Advisor
Keywords:
ESG news Event study Corporate Social Responsibility Sustainable Investing ESG Firm value Stock prices ESG investing
Abstract:
Based on existing research, there is little to no evidence to suggest a significant correlation between stock prices and Environmental, Social, and Governance (ESG) factors. This short-term event study looks at 85,878 negative ESG articles published from 2007 to 2022 about over 5,521 companies. My objective was to provide evidence that companies are being punished for negative ESG news by using a comparably larger dataset, over a longer period of time. Aggregating the data across industries and categories, I found that a negative ESG article correlates to a cumulative 6.5 basis point decrease in a company’s stock price the next day. Moreover, there is some indication that the impact will grow in the coming years. Drilling down by category, governance-related categories generally dominated the results. Articles related to social and environmental issues had bigger impacts when classified by industry. Ultimately, the results highlight the importance of genuine and thorough ESG management by companies.
