Sustainability Metrics in Emerging Markets: Analyzing ESG Scores Through Financial Returns and Risks

Dika Lirisanti; Zaäfri Ananto  Husodo

doi:10.55927/ijar.v4i1.13616

Authors

Dika Lirisanti Faculty of Economics and Business, University of Indonesia
Zaäfri Ananto Husodo Faculty of Economics and Business, University of Indonesia

DOI:

https://doi.org/10.55927/ijar.v4i1.13616

Keywords:

ESG Scores, Stock Returns, Risks, Emerging Markets, COVID-19 Pandemic, Asia

Abstract

This study examines the impact of stock returns and risks on ESG (Environmental, Social, and Governance) scores in emerging Asian markets during the COVID-19 pandemic. Utilizing panel data from Refinitiv Eikon for March 2019 to March 2022, this research investigates how returns, risks, and control variables such as Excess Market Return, SMB, HML, and Liquidity influence ESG scores. The findings reveal that returns and risks exhibit differential impacts on ESG scores, with social factors emerging as the most influential ESG component. These results highlight the nuanced role of financial performance in driving ESG metrics during crises, particularly in less-developed markets.

Downloads

Download data is not yet available.

References

Albuquerque, R., Koskinen, Y., Yang, S., & Zhang, C. (2020). Resiliency of environmental and social stocks: An analysis of the exogenous COVID-19 market crash. Review of Corporate Finance Studies, 9(3), 593–621. https://doi.org/10.1093/rcfs/cfaa011

Broadstock, D. C., Chan, K., Cheng, L. T. W., & Wang, X. (2021). The role of ESG performance during times of financial crisis: Evidence from COVID-19 in China. Finance Research Letters, 38(June 2020), 101716. https://doi.org/10.1016/j.frl.2020.101716

Dinh, M. T. H. (2023). ESG, time horizons, risks and stock returns. Research in International Business and Finance, 65(July 2022), 101981. https://doi.org/10.1016/j.ribaf.2023.101981 Folger-Laronde, Z.,

Pashang, S., Feor, L., & ElAlfy, A. (2022). ESG ratings and financial performance of exchange-traded funds during the COVID-19 pandemic. Journal of Sustainable Finance and Investment, 12(2), 490–496. https://doi.org/10.1080/20430795.2020.1782814

Gregory, R. P. (2022). ESG scores and the response of the S&P 1500 to monetary and fiscal policy during the Covid-19 pandemic. International Review of Economics &Finance. https://www.sciencedirect.com/science/article/pii/S1059056021002616

Jin, Y., Liu, Q., Tse, Y., & Zheng, K. (2023). Hedging Covid-19 risk with ESG disclosure. International Review of Economics and Finance, 88(May 2022), 27–46. https://doi.org/10.1016/j.iref.2023.06.002

Kanamura, T. (2021). Risk Mitigation and Return Resilience for High Yield Bond ETFs with ESG Components. Finance Research Letters, 41(September 2020), 101866. https://doi.org/10.1016/j.frl.2020.101866

Kilic, Y., Destek, M. A., Cevik, E. I., Bugan, M. F., Korkmaz, O., & Dibooglu, S. (2022). Return and risk spillovers between the ESG global index and stock markets: Evidence from time and frequency analysis. Borsa Istanbul Review, 22, S141–S156. https://doi.org/10.1016/j.bir.2022.11.015

Li, H., Guo, H., Hao, X., & Zhang, X. (2023a). The ESG rating, spillover of ESG ratings, and stock return: Evidence from Chinese listed firms. Pacific-Basin Finance Journal. https://www.sciencedirect.com/science/article/pii/S0927538X23001622

Li, H., Guo, H., Hao, X., & Zhang, X. (2023b). The ESG rating, spillover of ESG ratings, and stock return: Evidence from Chinese listed firms. Pacific Basin Finance Journal, 80(January), 102091. https://doi.org/10.1016/j.pacfin.2023.102091

Liu, L., Nemoto, N., & Lu, C. (2023). The Effect of ESG performance on the stock market during the COVID-19 Pandemic — Evidence from Japan. Economic Analysis and Policy, 79, 702–712. https://doi.org/10.1016/j.eap.2023.06.038

Liu, M., Guo, T., Ping, W., & Luo, L. (2023). Sustainability and stability: Will ESG investment reduce the return and volatility spillover effects across the Chinese financial market? Energy Economics, 121(February), 106674. https://doi.org/10.1016/j.eneco.2023.106674

López Prol, J., & Kim, K. (2022). Risk-return performance of optimized ESG equity portfolios in the NYSE. Finance Research Letters, 50(September). https://doi.org/10.1016/j.frl.2022.103312

Pavlova, I., & Boyrie, M. E. de. (2022). ESG ETFs and the COVID-19 stock market crash of 2020: Did clean funds fare better? Finance Research Letters. https://www.sciencedirect.com/science/article/pii/S154461232100132X

Sharma, S. (2023). Does ESG risk management ensure better risk management? Evidence from India. Procedia Computer Science. https://www.sciencedirect.com/science/article/pii/S1877050923008268

Xu, N., Chen, J., Zhou, F., Dong, Q., & He, Z. (2023). Corporate ESG and resilience of stock prices in the context of the COVID-19 pandemic in China. Pacific-Basin Finance Journal. https://www.sciencedirect.com/science/article/pii/S0927538X23001063