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ESG finance during market downturns

Ghanma, D. (2022) ESG finance during market downturns. PhD thesis, University of Reading

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To link to this item DOI: 10.48683/1926.00108507


This thesis investigates the importance of Environmental, Social, and Governance (ESG) criteria during equity market downturns. Our findings contribute to the debate on whether Corporate Social Responsibility (CSR), as measured by ESG scores, is associated positively with returns. We explore declines that may be accompanied by a shift in investor preference for certain ESG criteria. The first empirical chapter explores the relationship between European firms’ CSR and equity market performance during the Subprime Crisis as well as the Sovereign Debt Crisis (SDC). We find that European firms with higher CSR scores outperformed those with lower scores during the Subprime Crisis. However, we find the opposite association during the SDC and suggest that this may be because CSR scores became more strongly correlated with ESG controversies. We posit that investors have come to rely on more than aggregate CSR measures in assessing a firm’s social capital. Next, we focus on the COVID-19 crisis period and work flexibility – an employee-related measure of ESG under the Social Pillar. We find that firms whose employees were accustomed to work flexibility before the COVID-19 downturn outperformed their counterparts in early 2020. Importantly, we find that this positive association is significantly stronger at the industry level and that it did not exist prior to the pandemic. Our findings contribute to the literature on the potential for socially responsible investments to be a safe haven during market declines. Finally, we look at market downturn in the countries worst affected by the 2021 summer floods in Europe. Testing a hypothesis that more environmentally responsible firms would outperform their counterparts during this window, we find counter-intuitive results to the contrary. We discuss whether environmental scores may be a proxy for high environmental risk exposure. Our results would fit the supposition that investors suspect ESG scores to be greenwashed.

Item Type:Thesis (PhD)
Thesis Supervisor:Oikonomou, I. and Varotto, S.
Thesis/Report Department:ICMA Centre
Identification Number/DOI:
Divisions:Henley Business School > ICMA Centre
ID Code:108507

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