IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v18y2025i7p367-d1692779.html

The Effects of ESG Scores and ESG Momentum on Stock Returns and Volatility: Evidence from U.S. Markets

Author

Listed:
  • Luis Jacob Escobar-Saldívar

    (EGADE Business School, Tecnologico de Monterrey, San Pedro Garza García 66269, Mexico)

  • Dacio Villarreal-Samaniego

    (Department of Economics and Managerial Sciences, Tecnológico Nacional de México, Hidalgo del Parral 33850, Mexico)

  • Roberto J. Santillán-Salgado

    (EGADE Business School, Tecnologico de Monterrey, San Pedro Garza García 66269, Mexico)

Abstract

The impact of Environmental, Social, and Governance (ESG) scores on financial performance remains a subject of debate, as the literature reports mixed evidence regarding their effect on stock returns. This research aims to examine the relationship between ESG ratings and the change in ESG scores, or ESG Momentum, concerning both returns and risk of a large sample of stocks traded on U.S. exchanges. The study examined a sample of 3856 stocks traded on U.S. exchanges, considering 20 years of quarterly data from December 2002 to December 2022. We applied multi-factor models and tested them through pooled ordinary, fixed effects, and random effects panel regression methods. Our results show negative relationships between ESG scores and stock returns and between ESG Momentum and volatility. Contrarily, we find positive associations between ESG Momentum and returns and between ESG scores and volatility. Although high ESG scores are generally associated with lower long-term stock returns, an increase in a company’s ESG rating tends to translate into immediate positive returns and reduced risk. Accordingly, investors may benefit from strategies that focus on companies actively improving their ESG performance, while firms themselves stand to gain by signaling continuous advancement in ESG-related areas.

Suggested Citation

  • Luis Jacob Escobar-Saldívar & Dacio Villarreal-Samaniego & Roberto J. Santillán-Salgado, 2025. "The Effects of ESG Scores and ESG Momentum on Stock Returns and Volatility: Evidence from U.S. Markets," JRFM, MDPI, vol. 18(7), pages 1-21, July.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:7:p:367-:d:1692779
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/18/7/367/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/18/7/367/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Francesco Perrini & Angeloantonio Russo & Antonio Tencati & Clodia Vurro, 2011. "Deconstructing the Relationship Between Corporate Social and Financial Performance," Journal of Business Ethics, Springer, vol. 102(1), pages 59-76, March.
    2. Shanaev, Savva & Ghimire, Binam, 2022. "When ESG meets AAA: The effect of ESG rating changes on stock returns," Finance Research Letters, Elsevier, vol. 46(PA).
    3. Piotr Ratajczak & Dawid Szutowski, 2016. "Exploring the relationship between CSR and innovation," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 7(2), pages 295-318, May.
    4. Piotr Ratajczak & Dawid Szutowski, 2016. "Exploring the relationship between CSR and innovation," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 7(2), pages 295-318, May.
    5. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    6. Nektarios Gavrilakis & Christos Floros, 2023. "ESG performance, herding behavior and stock market returns: evidence from Europe," Operational Research, Springer, vol. 23(1), pages 1-21, March.
    7. Luigi Aldieri & Alessandra Amendola & Vincenzo Candila, 2023. "The Impact of ESG Scores on Risk Market Performance," Sustainability, MDPI, vol. 15(9), pages 1-16, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nikolaos Iliopoulos, 2025. "Covariance-Aware Simplex Projection for Cardinality-Constrained Portfolio Optimization," Papers 2512.19986, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lu, Xiaomeng & Zhang, Xianjun & Guo, Fusen & Li, Feng, 2024. "Evaluating ESG Investment Profitability: From the Perspective of Sophistication in Investment Decision-Making," Finance Research Letters, Elsevier, vol. 69(PA).
    2. Adil Haniev & Viktoriya V. Suhih, 2025. "Analysis of the Impact of ESG Initiatives on the Financial Performance of Shareholders in Russian Companies," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 24(1), pages 319-343.
    3. Shang, Zili & Yu, Bo & Lam, Keith S.K., 2025. "Does ESG explain stock returns? Evidence from Chinese stock markets," Finance Research Letters, Elsevier, vol. 79(C).
    4. Alves, Rómulo & Krüger, Philipp & van Dijk, Mathijs, 2025. "Drawing up the bill: Are ESG ratings related to stock returns around the world?," Journal of Corporate Finance, Elsevier, vol. 93(C).
    5. Lu, Chia-Wu & Wu, Hsueh-Ling & Su, Yu-Hsuan, 2024. "The icing on the cake: ESG effect on the quality factor portfolios," Finance Research Letters, Elsevier, vol. 70(C).
    6. García-Piqueres, Gema & García-Ramos, Rebeca, 2022. "Complementarity between CSR dimensions and innovation: behaviour, objective or both?," European Management Journal, Elsevier, vol. 40(4), pages 475-489.
    7. Horky, Florian & Pasquali, Andrea & Magazzino, Cosimo, 2024. "ESG rating disagreement portfolios – Evidence from the EuroStoxx 600," Finance Research Letters, Elsevier, vol. 69(PA).
    8. Zhou, Fuyuan & Chen, Hanlong & Tang, Shiyu & Lee, Chuan & Lin, Chin-Tsai, 2025. "Integrating ESG into financial distress models: The role of financial report quality and innovation in the Chinese market," International Review of Economics & Finance, Elsevier, vol. 101(C).
    9. Li, Lu & Gan, Yufei & Bi, Shuochen & Fu, Haokai, 2025. "Substantive or strategic? Unveiling the green innovation effects of pilot policy promoting the integration of technology and finance," International Review of Financial Analysis, Elsevier, vol. 97(C).
    10. Ricci, Ornella & Santilli, Gianluca & Scardozzi, Giulia & Stentella Lopes, Francesco Saverio, 2024. "ESG resilience in conflictual times," Research in International Business and Finance, Elsevier, vol. 71(C).
    11. Ayman Issa & Nasrine Bensalem, 2023. "Are gender‐diverse boards eco‐innovative? The mediating role of corporate social responsibility strategy," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(2), pages 742-754, March.
    12. González-Ramos, M. Isabel & Guadamillas, Fátima & Donate, Mario J., 2023. "The relationship between knowledge management strategies and corporate social responsibility: Effects on innovation capabilities," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    13. Luis E. Villegas & Andrés A. Acuña-Duarte & César A. Salazar, 2023. "Corporate Social Responsibility and the Willingness to Eco-Innovate among Chilean Firms," Sustainability, MDPI, vol. 15(12), pages 1-19, June.
    14. Jun Nie & Qiqi Wang, 2026. "Corporate social responsibility, market segmentation, and innovation performance," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 28(3), pages 7677-7700, March.
    15. Prodosh Eugene Simlai, 2025. "Non-Pecuniary Risk, ESG Ratings, and Expected Stock Returns," Sustainability, MDPI, vol. 17(16), pages 1-24, August.
    16. Bachner, Felix, 2025. "Decoding market reactions: Analysis of divergent signals of ESG ratings," International Review of Financial Analysis, Elsevier, vol. 103(C).
    17. Yu, Xiaoling & Xiao, Kaitian & Xu, Tao, 2023. "Does ESG profile depicted in CSR reports affect stock returns? Evidence from China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 627(C).
    18. Meftah Gerged, Ali & Kuzey, Cemil & Uyar, Ali & Karaman, Abdullah S., 2023. "Does investment stimulate or inhibit CSR transparency? The moderating role of CSR committee, board monitoring and CEO duality," Journal of Business Research, Elsevier, vol. 159(C).
    19. Jadiyappa, Nemiraja & Chauhan, Yogesh, 2023. "Mandatory CSR regulation and R&D investments: Evidence from a quasi-natural experiment," Finance Research Letters, Elsevier, vol. 55(PA).
    20. Minh-Hieu Le & Wen-Min Lu & Qian Long Kweh, 2023. "The moderating effects of power distance on corporate social responsibility and multinational enterprises performance," Review of Managerial Science, Springer, vol. 17(7), pages 2503-2533, October.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:18:y:2025:i:7:p:367-:d:1692779. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.