E, S, or G? Pillar-specific rating changes and their respective impacts on Stock Price Performance.
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2024-07-10
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en
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Given the increased demand of investors, more stringent regulations, and global pressures regarding sustainability in the financial markets, the relationship between ESG – Environmental, Social, and Governance scores - and the stock market becomes more important to know the implications of. The current literature predominantly focuses on absolute ESG scores, whereas the changes in scores capture the dynamics of the frameworks and how investors react to it. This master’s thesis aims to fill the gap in the literature by analysing how changes in ESG scores of firms are reacted to in the European stock markets, adopting event-study methodology encompassing 1400 different stocks over 15 different countries for the timeframe 2018-2023. I fail to find conclusive evidence of significant cumulative abnormal returns, with the CAPM model as a benchmark over the event window, implying that rating changes of ESG metrics as an event do not lead to significant deviations from the expectation. This leads me to be unable to reject the null hypothesis of no positive relationship between the direction of ESG rating changes and CAR’s.
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Faculteit der Managementwetenschappen