International market exposure to sovereign ESG

Abstract

We quantify equity and bond market sensitivity to sovereign ESG scores and their variations which, theoretically, is equivalent to evaluating the demand for ESG at the global scale. We do so by estimating a longitudinal model, at the issue level, that captures exposures to sovereign ESG factors for both equity and fixed income indices. In spite of the surging interest in ESG investing, our results do not support a strong impact of ESG factors on the returns of international markets, implying that the demand for ESG at the country level is not a significant driver of prices. Nevertheless, we document a strong association between GDP growth and ESG scores at the country level.

The Role of GDP Growth in the Esg Approach at World Level

“…Among the ESG variables only G seems not to have a negative effect on financial stability in the case of a reduction in GDPG rate for companies listed in the S&P 500 (Cohen, 2023). The positive relationship between GDP and ESG scores holds at global level (Morgenstern et al, 2022). ESG either Granger causes GDP either is Granger caused by GDP in OECD countries in the period 2000-2017 (Naomi & Akbar, 2021).…”

The Role of GDP Growth in the ESG Approach at World Level

“…Among the ESG variables only G seems not to have a negative effect on financial stability in the case of a reduction in GDPG rate for companies listed in the S&P 500 [12]. The positive relationship between GDP and ESG scores holds at global level [13]. ESG either Granger causes GDP either is Granger caused by GDP in OECD countries in the period 2000-2017 [14].…”