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Impact of ESG Preferences on Investors in China’s A-Share Market

Author

Listed:
  • Yihan Sun

    (School of Data Science, The Chinese University of Hong Kong, Shenzhen 518172, China)

  • Diyang Jiao

    (School of Data Science, The Chinese University of Hong Kong, Shenzhen 518172, China)

  • Yiqu Yang

    (School of Data Science, The Chinese University of Hong Kong, Shenzhen 518172, China)

  • Yumeng Peng

    (School of Data Science, The Chinese University of Hong Kong, Shenzhen 518172, China)

  • Sang Hu

    (School of Data Science, The Chinese University of Hong Kong, Shenzhen 518172, China)

Abstract

This study explores the time-varying influence of Environmental, Social, and Governance (ESG) factors on asset pricing in China’s A-share market from 2017 to 2023, integrating investor heterogeneity categorized as ESG-unaware (Type-U), ESG-aware (Type-A), and ESG-motivated (Type-M). taxonomy. It adopts a linear regression model with seven control variables (including firm systematic risk, asset turnover ratio, and ownership concentration) to quantify ESG’s marginal effect on stock returns. Annual regressions (2017–2022) reveal distinct ESG coefficient shifts: insignificant negative coefficients in 2017–2018, significantly positive coefficients in 2019–2020, and significantly negative coefficients in 2021–2022. Heterogeneity analysis across five non-financial industries (Utilities, Properties, Conglomerates, Industrials, Commerce) shows industry-specific ESG effects. Portfolio performance tests using 2023 data (stocks divided into eight ESG groups) indicate that portfolios with medium ESG scores outperform high/low ESG portfolios and the traditional mean-variance model in risk-adjusted returns (Sharpe ratio) and volatility control, avoiding poor governance risks (low ESG) and excessive ESG resource allocation issues (high ESG). Overall, policy shocks and institutional maturation transformed the market from ESG indifference to ESG-motivated pricing within a decade, offering insights for stakeholders in emerging ESG markets.

Suggested Citation

  • Yihan Sun & Diyang Jiao & Yiqu Yang & Yumeng Peng & Sang Hu, 2025. "Impact of ESG Preferences on Investors in China’s A-Share Market," IJFS, MDPI, vol. 13(4), pages 1-17, October.
    • Handle: RePEc:gam:jijfss:v:13:y:2025:i:4:p:191-:d:1771392
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    References listed on IDEAS

    as
    1. Lin, Xudong & Zhu, Hao & Meng, Yiqun, 2023. "ESG greenwashing and equity mispricing: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PD).
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    3. Amal Aouadi & Sylvain Marsat, 2018. "Do ESG Controversies Matter for Firm Value? Evidence from International Data," Journal of Business Ethics, Springer, vol. 151(4), pages 1027-1047, September.
    4. Loan T. Le, 2024. "Impact of environmental, social and governance practices on financial performance: evidence from listed companies in Southeast Asia," Cogent Business & Management, Taylor & Francis Journals, vol. 11(1), pages 2379568-237, December.
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