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ESG improvement as a critical driver of improved shareholder returns: A study of comparative portfolios

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  • Garbuio, Massimo
  • Leeson, Chris
  • Gheno, Gloria

Abstract

This study explores the link between environmental, social, and governance (ESG) rating improvements and stock performance. Building a portfolio of stocks that showed sustained ratings improvement from 2019-2023, we find that this “ESG Improvers” portfolio delivers superior returns compared with randomly constructed portfolios, portfolios composed of companies with unchanged ESG ratings, and the ASX200 and S&P500 indices. Firms with stable or declining ESG ratings tend to underperform, while ESG Improvers consistently exhibit a stronger overall risk–return profile. These findings confirm the view that only sustained ESG improvements are related to stock performance and highlight the need for investors to actively scrutinize one-off ESG rating improvements.

Suggested Citation

  • Garbuio, Massimo & Leeson, Chris & Gheno, Gloria, 2026. "ESG improvement as a critical driver of improved shareholder returns: A study of comparative portfolios," Finance Research Letters, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:finlet:v:99:y:2026:i:c:s1544612326004344
    DOI: 10.1016/j.frl.2026.109905
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