ESG did not immunize stocks during the COVID‐19 crisis, but investments in intangible assets did

Abstract

Environmental, social and governance ("ESG") scores have been widely touted as indicators of share price resilience during the COVID-19 crisis. Contrary to this conventional wisdom, we present robust evidence that once industry affiliation, market-based measures of risk and accounting-based measures of performance, financial position and intangibles investments have been controlled for, ESG offers no such positive explanatory power for returns during the COVID crisis. Specifically, ESG is insignificant in fully specified returns regressions for each of the Q1 2020 COVID market crisis period and for the full COVID year of 2020.By contrast, a measure of the firm's stock of investments in internally generated intangible assets is an economically and statistically significant positive determinant of returns during each of the Q1 market implosion and full 2020 COVID year periods. Our results are robust to alternative measures of returns, as well as for using Refinitiv, Refinitiv II and MSCI data to capture ESG performance. We conclude that ESG did not immunize stocks during the COVID-19 crisis, but those investments in intangible assets did.

ESG scores and the response of the S&P 1500 to monetary and fiscal policy during the Covid-19 pandemic

“…Overall, contrary to the results of Demers et al (2021) there is evidence that firms that score higher in E, S, and G are less penalized throughout the pandemic, though maybe not during the early stages. Management of governance risks seems to play a key role in creating value over the pandemic, indicating that leadership is viewed as important throughout the pandemic in maintaining value for Non-Financial firms.…”

“… Demers et al (2021) present evidence that, once industry affiliation, market-based measures of risk, and accounting-based measures of performance, financial position, and intangibles investments have been controlled for, ESG ratings didn't positively affect returns during the COVID crisis during the first quarter of 2020. Hoang et al (2021) examine a set of European firms during the pandemic and find that high ESG ratings are associated with lower stock volatility though not higher returns.…”

Sustainable Finance and COVID-19: The Reaction of ESG Funds to the 2020 Crisis

“…This result is in accordance with those of Nofsinger and Varma [12], Lins et al [13], Albuquerque et al [26], Mirza et al [29], and Xiong [27]. By contrast, these findings do not support the conclusions of Broadstock et al [14], Folger-Laronde et al [18], Hartzmark and Sussman [22], Demers et al [19], and Chiappini et al [20].…”

“…They could overcome the trade-offs but, as is well known, the results concerning their financial performance are mixed. On one hand, sustainable financial products have been shown to outperform the market during a crisis (e.g., [12,13], and more recently Broadstock et al [14] and Engelhardt et al [15]); by contrast, some results are negative or do not show any outperformance during a bear market (e.g., [16,17], and, with a specific focus on the last crisis, Folger-Laronde et al [18], Demers et al [19], and Chiappini et al [20]) or without considering any financial crisis period (e.g., [21,22]).…”

Firms’ challenges and social responsibilities during Covid-19: A Twitter analysis

“…Some papers focused on the consequences of firms' practices on their performances (for example [8], studied the effects of remote working on small businesses). Other streams of literature explored the effects of Covid-19 on firms' performances considering the stock market [9,10] and the impact of CSR activities [11][12][13][14]. Some papers focus on niches, considering the performance of the stock market in specific sectors, as the travel and leisure industry [15] or the hospitality sector [16].…”