Investments made in sustainable, responsible and impactful companies are higher now than ever before. The measure of sustainability of individual companies is done with ESG scores or Environmental, Social and Governance criteria. ESG criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. In this paper, I will test ESG scores effect on individual stock returns to see if there is a statistically significant correlation between the two variables. The research question of this paper is: by comparing the energy industry to the market, are ESG scores more important in determining returns in the energy industry than the overall market? To answer this question, ESG and stock return data was gathered for the S&P 500. All data collected spans two years, 2018 and 2019. Through careful development of theoretical framework this paper hypothesizes that ESG scores will have a negative effect on stock market returns in both the energy industry and market. The results of this paper prove the hypothesis right in the overall market, but positive returns are observed in the energy industry. All ESG explanatory variables were statistically significant predictors of stock market returns at the 5% level. This paper concludes that ESG scores are a better predictor of stock market returns in the energy industry than the overall market.
Ferrara, Evan, "Sustainability and Stock Market Returns: A Study of the Impact of ESG Scores on Stock Returns in the Energy Industry and Overall Market" (2020). Senior Independent Study Theses. Paper 8817.
Business Analytics | Finance and Financial Management | Portfolio and Security Analysis
Bachelor of Arts
Senior Independent Study Thesis
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