Does ESG affect stock market dependence? An empirical exploration of S&P 1200 companies shows the divergent nature of E–S–G pillars

If ESG characteristics of companies attract loyal and resilient investors and customers, does ESG affect the stock-market connectedness during market upturns and downturns? The micro-level analysis uses the cross-quantilogram to measure quantile dependence between stocks in the S&P 1200 and the market with distinguishing factors of ESG scores. We employed the scores of seven major ESG data providers and their structural combination to capture the shared information. We found a systematic effect both on the level of multidimensional and unidimensional ESG scores. Moreover, we showed Governance scores create a counter-effect on the Environmental and Social pillars. In general, the high- and middle-ESG stocks tend to have lower dependence on the market during market downturns, with E and S scores pushing the dependence down and the G dimension pushing it up. Results suggest a lower distinguishing power of Environment and Social pillars and persistent Governance pillar power during moderate and upturn market times.