The Impact of the ESG Ratings on Returns: an Event Study Perspective

Abstract

This thesis aims at analysing and deepening the most interesting and significant aspects of Environmental, Social and Governance (ESG) issues. In the last few years, concerns about ESG factors have become fundamental and asset managers need to consider their impact on companies value. In particular, the publication of a company's ESG rating could induce some abnormal returns in the stock market. The event study methodology can be used to verify the statistical significance of abnormal returns in the observation period, i.e. when ESG ratings are made public. The event study is a powerful statistical tool used in several disciplines for empirical research. Since the last decade, many rating agencies began publishing ESG scores of listed companies on an annual basis. Two of the most popular agencies are Bloomberg and MSCI, that will be used in this thesis. In this thesis, a sample of one hundred and fifty listed firms that have received an annual ESG rating by Bloomberg and MSCI, from December 2014 to February 2022, is collected. These listed companies belong to the Dow Jones Sector Titans market index. Empirical findings demonstrate the presence of abnormal returns for the day the ESG scores are published. This phenomenon is consistent with the semi-strong form of the Efficient Market Hypothesis. However, abnormal returns are observable a few days before the publication of the ESG scores and persist for a few days thereafter.