Do ESG Positioning Decisions Affect Stock Performance?

Abstract

Currently, all economic agents are interested in the concept of sustainable development (ESGdevelopment), which provides for the functioning of a single, holistic system: ecology, society, corporate governance. Markets and companies are undergoing structural changes in their activities, ESG projects are being implemented, new regulations, “green” tools, alliances, ratings are emerging. Accordingly, investors can take these factors into account when evaluating the company's performance. Thus, in our work, the question is asked: do ESG news about companies affect the profitability of shares of these very companies? The
purpose of this study is to assess the impact of news, real cases, ratings on the profitability of company shares in the context of ESG transformation of the economy on the example of the Russian stock market. Applying the methodology of event analysis
(event study), we implement models both for individual cases with identified cumulative returns (CAR) and for groups formed according to certain criteria with accumulated average cumulative returns (CAAR) for various window variations, from
a 2-day to a 21-day period. In this connection, it is possible to interpret which ESG decisions of companies or ESG events are perceived by the market (investors) better, and which on the contrary give a negative effect, which allows both to assess the
readiness of the market to follow the responsible investment approach as a whole, and to give companies signals about how investors act. The result of the study shows that only 11,6% (at the 5% significance level) and 27,2% (at the 10% significance
level) of events considered separately lead to an abnormal market reaction to company news in the ESG field. During the study, we noticed that investors tend to react negatively to negative news, that is, to fine companies for misconduct under the ESG
agenda. This is especially pronounced when companies show irresponsibility to environmental and social factors. In such situations, the company risks receiving negative returns on securities and reducing its well-being. A positive reaction was detected if the news is related to the company receiving investments from financial organizations (banks, investment funds, credit organizations), or if the news contains a brief financial result of the company itself to ensure ESG transformation and participation in ESG projects.