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The Integration of Conventional Equity Indices with Environmental, Social, and Governance Indices: Evidence from Emerging Economies

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  • Ramiz ur Rehman

    (School of Management, Xi’an Polytechnic University, Xi’an 710048, China
    Lahore Business School, The University of Lahore, Lahore 54100, Pakistan)

  • Muhammad Zain ul Abidin

    (Lahore Business School, The University of Lahore, Lahore 54100, Pakistan)

  • Rizwan Ali

    (Lahore Business School, The University of Lahore, Lahore 54100, Pakistan)

  • Safwan Mohd Nor

    (Faculty of Business, Economics and Social Development, University of Malaysia Terengganu, Kuala Nerus 21030, Terengganu, Malaysia
    Victoria Institute of Strategic Economic Studies, Victoria University, Melbourne, VIC 3000, Australia)

  • Muhammad Akram Naseem

    (Lahore Business School, The University of Lahore, Lahore 54100, Pakistan)

  • Mudassar Hasan

    (Lahore Business School, The University of Lahore, Lahore 54100, Pakistan)

  • Muhammad Ishfaq Ahmad

    (Lahore Business School, The University of Lahore, Lahore 54100, Pakistan)

Abstract

This study investigates the integration of environmental, social, and governance (ESG) equity indices with conventional indices in Brazil, Russia, India, China, and South Africa (BRICS) individually and across all BRICS countries to better understand regional economic cooperation. Accordingly, we look at daily returns from 13 July 2013 to 28 February 2018 for the Morgan Stanley Capital International (MSCI) ESG indices and MSCI composite indices of the respective countries. To analyze the integration between the ESG equity indices of the sampled countries with their regional and across regional conventional counterparts, the Johansen Co-integration test is employed in this study. Further, the vector error correction model (VECM) is applied to test the causality between the sampled time-series. The impulse response function analysis further explains the impulse responses of each country’s MSCI ESG returns to one standard deviation of innovations to MSCI composite returns of the same country and across countries. Finally, the extent of the MSCI composite returns’ impact on the MSCI ESG returns in the same country indices, and cross-regional indices is examined with variance decomposition analysis. The results suggest that all ESG equity indices are integrated with conventional indices in all BRICS countries. Furthermore, there is a short-or long-run causality between MSCI ESG and MSCI composite equity indices of China and South Africa. Moreover, the study finds only short-run causality between conventional and non-conventional equity indices of Brazil and Russia, whereas we find only long-run causality between India’s non-conventional and conventional equity indices. Finally, the study finds that the all-individual country MSCI ESG equity indices shows a long-run causality with MSCI composite equity indices of all other BRICS countries. The findings also confirm the economic and financial cooperation between the BRICS countries.

Suggested Citation

  • Ramiz ur Rehman & Muhammad Zain ul Abidin & Rizwan Ali & Safwan Mohd Nor & Muhammad Akram Naseem & Mudassar Hasan & Muhammad Ishfaq Ahmad, 2021. "The Integration of Conventional Equity Indices with Environmental, Social, and Governance Indices: Evidence from Emerging Economies," Sustainability, MDPI, vol. 13(2), pages 1-27, January.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:2:p:676-:d:479041
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    4. Anrafel Souza Barbosa & Maria Cristina Basilio Crispim Silva & Luiz Bueno Silva & Sandra Naomi Morioka & Vinícius Fernandes Souza, 2023. "Integration of Environmental, Social, and Governance (ESG) criteria: their impacts on corporate sustainability performance," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-18, December.

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