Time-varying preferences for ESG investments: evidence from an emerging market

Abstract

This paper aims to examine the time-varying preferences for environment, social and corporate governance (ESG) investing in an emerging market. The investors seek ESG-conscious investments during a positive economic outlook, reflecting the time-varying nature of ESG demand. Specifically, the author shows that high-ESG stocks have negative abnormal returns during bad economic times but turn into positive abnormal returns in good economic times. The author also suggests that the alpha spread between high-ESG and low-ESG stocks is larger in good economic times than in bad times. Furthermore, individual investors prefer high ESG scoring stocks in good economic times. The author highlights that this ESG premium is shaped by economic projection and the households' financial wealth.

The impact of ESG ratings on corporate value during COVID-19 pandemic: evidence from China and South Korea

“…Others suggest that no clear linear relationship exists between ESG performance and corporate value (Filbeck and Gorman, 2004). Cho (2023) suggested that high-ESG stocks yield negative abnormal returns in economic downturns in the South Korean stock market. Harabida et al (2022) and Asteriou et al (2023) noted that highly-rated ESG firms posted more pronounced negative abnormal returns than lower-rated ESG firms during COVID-19 in European markets.…”

Efeitos Macroeconômicos Na Relação Entre as Características Do Conselho De Administração E O Desempenho Esg

“…Buallay (2018) evidenciou que países da União Europeia buscaram estabelecer e implementar relatórios de sustentabilidade com o intuito de fortalecer relações com a sociedade em geral e as comunidades empresariais, avançando na sustentabilidade. Cho (2023), ao avaliar as variáveis de ESG em um mercado emergente, identificou que ações com alto ESG apresentam retornos anormais negativos em tempos de recessão, mas se transformam em anormais positivos em tempos econômicos bons.…”

Can Warren Buffetts Investment Decisions Independent of ESG? Evidence from Berkshire Hathaway

“…It has gained global recognition in recent decades because ESG investing strives to unite financial aspirations with positive societal and environmental impacts. Advocates of this approach believe that companies proficient in managing ESG aspects exhibit greater sustainability and resilience over extended periods [3]. By taking ESG factors into account, investors can pinpoint businesses that are not only financially stable but also make beneficial contributions to society while mitigating potential risks associated with inadequate environmental or social practices [4].…”

“…Companies with strong ESG performance can attract a broader pool of investors, including those who prioritize sustainability. This access to capital can support growth initiatives and foster positive change [3,5].…”