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ESG ratings and attention: The impact on stock market performance

Author

Listed:
  • Yan, Jingzhou
  • Shen, Jiahao
  • Zou, Jin
  • Zou, Yanchi

Abstract

This study constructs an ESG attention index to explore the relationship between ESG ratings and stock market returns across varying levels of ESG attention. We developed a theoretical asset pricing model that incorporates both ESG ratings and levels of ESG attention to investigate this issue. Our theoretical simulations indicated that increased attention levels intensify the negative effect of ESG ratings on the returns of risk assets. Further empirical validation yielded consistent results. The validity of these findings was confirmed through robustness tests using instrumental variables. Further research shows that ESG ratings reduce the proportion of institutional investors in high ESG attention scenarios, thereby significantly affecting the asset returns. These findings suggest that the demand of investors may serve as a channel through which ESG attention influences the relationship between ESG ratings and stock returns. This research enriches the understanding of the relationship between ESG ratings and stock market performance, provides insights into the influence of ESG attention, and offers valuable decision-making implications for investors and stakeholders in the pursuit of sustainable development goals.

Suggested Citation

  • Yan, Jingzhou & Shen, Jiahao & Zou, Jin & Zou, Yanchi, 2025. "ESG ratings and attention: The impact on stock market performance," Finance Research Letters, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finlet:v:83:y:2025:i:c:s1544612325008001
    DOI: 10.1016/j.frl.2025.107541
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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