Socially Responsible and Financially Rewarding: The Relationship Between ESG and Stock Market Returns

Sammanfattning: We study the link between the ESG-performance of 20 OECD countries and the excess returns of their major stock indices between 2005 and 2015. Our research shows a significant positive relationship between the two metrics. Deeper analysis suggests that social factors are the main drivers of this relationship while we find no significance for environmental and governance factors. We further measure the relationship between the ESG-performance and market risk expressed as volatility and skewness of excess returns. Our findings show no significant relationship with volatility and a significant positive relationship with skewness. We find a significant positive relationship between risk-adjusted returns, expressed as the Sharpe ratio, and ESG-performance.