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Does sustainability activities performance matter during financial crises? Investigating the case of COVID-19

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  • Yoo, Sunbin
  • Keeley, Alexander Ryota
  • Managi, Shunsuke

Abstract

As a market for sustainability investing is growing rapidly, understanding the impact of environmental, social, and governance (ESG) activities on firms’ financial performance is becoming increasingly important. In this study, we examine the effect of ESG performance on stock returns and volatility during the financial crisis resulting from the coronavirus (COVID-19) pandemic. To quantify the impact, we use company-level daily ESG score data and United Nations Global Compact (GC) score data. In our dataset, ESG scores indicate ESG performance that is deemed important to financial materiality, and the GC score indicates the firm reputation for following UN rules. Our results indicate that during the pandemic, an increase in the ESG score, especially the E score component, is related to higher returns and lower volatility. Conversely, increasing GC scores is correlated with lower stock returns and higher volatility. In addition, we find that firms in lower return groups benefit more than other firms. Focusing on energy sector impacts, we show that although the non-energy sector benefits more than the energy sector from increasing E scores, energy sector firms can still reduce their stock price volatility by increasing these scores. Our study offers significant implications for ESG investment strategies during financial crises.

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  • Yoo, Sunbin & Keeley, Alexander Ryota & Managi, Shunsuke, 2021. "Does sustainability activities performance matter during financial crises? Investigating the case of COVID-19," Energy Policy, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:enepol:v:155:y:2021:i:c:s0301421521002007
    DOI: 10.1016/j.enpol.2021.112330
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    5. Kudryashov, Alexander, 2023. "ESG Transformation: A Roadmap for Russia’s Sustainable Development /– Tallinn : OPEN EUROPEAN ACADEMY OF PUBLIC SCIENCES OÜ, 2023," OSF Preprints 6j8ux, Center for Open Science.
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    14. Piñeiro-Chousa, Juan & López-Cabarcos, M. Ángeles & Pérez-Pico, Ada M. & Caby, Jérôme, 2023. "The influence of Twitch and sustainability on the stock returns of video game companies: Before and after COVID-19," Journal of Business Research, Elsevier, vol. 157(C).
    15. Kenichi Yoshida & Kenichi Kurita & Shunsuke Managi, 2023. "Stakeholder engagement as a sustainable development strategy: Managerial entrenchment for cross‐shareholdings," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 402-418, January.
    16. Jill Atkins & Federica Doni & Andrea Gasperini & Sonia Artuso & Ilaria Torre & Lorena Sorrentino, 2023. "Exploring the Effectiveness of Sustainability Measurement: Which ESG Metrics Will Survive COVID-19?," Journal of Business Ethics, Springer, vol. 185(3), pages 629-646, July.
    17. Agnieszka Janik & Adam Ryszko, 2023. "Sustainability Reporting during the Crisis—What Was Disclosed by Companies in Response to the COVID-19 Pandemic Based on Evidence from Poland," Sustainability, MDPI, vol. 15(17), pages 1-54, August.
    18. Bakry, Walid & Mallik, Girijasankar & Nghiem, Xuan-Hoa & Sinha, Avik & Vo, Xuan Vinh, 2023. "Is green finance really “green”? Examining the long-run relationship between green finance, renewable energy and environmental performance in developing countries," Renewable Energy, Elsevier, vol. 208(C), pages 341-355.

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