Skip to content

29 January, 2023

Subscribe Advertise About Us
  • My Account
  • Register
  • Log In
  • Log Out

Board Agenda

  • Governance
  • Strategy
  • Risk
  • Ethics
  • News
    • Categories

      • View All
      • Board Moves
    • stakeholder governance

      Threat to stakeholder governance from Twitter sale ‘overstated’

      Academics and experts argue stakeholder governance will always come second while the law puts the...

    • Davos resilience News round-up: this week in governance

      Lessons from Davos; companies risk sliding back on ethical practices; economics affects everyone; Sir John...

    • audit reform UK Audit reform in the UK risks ‘losing momentum’

      The Financial Reporting Council still awaits the proposed new statutory powers that would allow it...

  • Insight
    • Categories

      • View all
      • Governance
      • Strategy
      • Risk
      • Ethics
      • Board Expertise
      • finance
      • Technology
    • climate litigation

      Climate litigation: how 2022 will shape 2023

      This past year saw a rise in climate litigation, with a focus on the commercial...

    • value whistleblowing

      Why we need to value whistleblowing

      Encouraging staff to speak up and stop harm can reduce legal and reputational risk—both for...

    • HR corporate trust

      HR: How to build employee trust in corporate culture

      The right HR director is essential to lead on a culture that gets the best...

  • Comment
      • View all
    • A week of business moving to the centre of human rights

      A week of events signals the initiatives underway to have companies play a central role...

    • audit reform IIA Why we need audit reform right now

      There is an "urgent need" for reform to the audit landscape as well as internal...

    • climate change energy crisis Sustainability and climate change: the other energy crisis

      The world is addicted to cheap energy. We need to admit this and have the...

  • Interviews
      • View All Interviews
      • Podcasts
      • Webinars
    • Board priorities 2023 Board priorities 2023: tact, trust and transparency

      We asked key figures what would help boards this year. The answers ranged from 'smarter...

    • Group of investors/shareholders in glass building Climate issues likely to figure prominently at next year’s AGMs

      A recent webinar heard that say-on-climate voting is expected to rise, while ESG remains a...

    • NEDs role NEDs ‘needed more than ever’ in times of uncertainty

      The non-executive director’s role is to both challenge and listen to management, agreed the panel...

  • Careers
      • View all
      • Selection
      • Board Moves
    • NED recruitment News round-up: this week in governance

      Your country needs NEDs; governance does not compute; financial firms get more women on board;...

    • HR corporate trust HR: How to build employee trust in corporate culture

      The right HR director is essential to lead on a culture that gets the best...

    • powerful CEOs Boards want powerful CEOs in tough times

      Single-minded chief executives have greater staying ability when business conditions are uncertain, research finds

  • Resource Centre
      • White Paper Downloads
      • Book Reviews
      • Corporate & Advisory Services
    • Edelman Trust Barometer 2023

      2023 Edelman Trust Barometer

      The report is the result of the Edelman Trust Institute's research, which sampled more than...

    • Sophos 2023 Threat Report

      Barriers to entry for would-be cybercriminals are lower, with tools and tactics becoming available to...

    • The C-Suite Outlook 2023: On the Edge

      The Conference Board 2023 C-Suite Outlook survey reveals the events that C-suite executives see as...

  • Events
  • Search by topic
    • Governance
    • Strategy
    • Risk
    • Ethics
    • Regulation
    • ESG
    • Investor Relations
    • Selection
    • Board Expertise
    • finance
    • Technology

ESG ‘not a factor’ in share price resilience during Covid-19 crisis

by Gavin Hinks on August 20, 2020

Researchers found that firms’ ESG ratings were also “significantly negatively associated with returns” in the Q2 recovery period.

Covid-19 crisis and stock market prices

Image: OSORIOartist/Shutterstock.com

There’s bad news for supporters of companies who score highly on environmental, social and governance (ESG) factors. Academics claim that lofty ESG ratings failed to “immunise” the stock prices of US companies when markets plunged during the Covid-19 crisis in the first quarter of 2020.

And things got worse for companies proud of their ESG accolades. While there was “insignificant” insulation from market turbulence in the first three months of the year—the height of the crisis—researchers say ESG had a notable “negative” effect during the recovery period in the quarter that followed.

Writing in a paper published this week—ESG Didn’t Immunize Stocks Against the Covid-19 Market Crash—academics from the Netherlands and the US, led by Elizabeth Demers at the University of Waterloo in Canada, conclude: “Overall, our study provides robust evidence to refute the widespread claims that ESG is a significant price resilience factor during the Covid-19 global crisis.”

ESG and Covid-19

The conclusion will disappoint many who have argued that companies scoring highly on ESG indices would have greater protection against shocks such as the pandemic.

As the researchers note, one commentator dubbed ESG an “equity vaccine”. Others claimed the pandemic would accelerate the move to sustainable investments. Others have claimed ESG ratings function as “safe havens” for investors. Board Agenda has reported on the crisis boosting the shift to “stakeholder” governance, a subject closely related to ESG.

Using statistical models, the team examined US stock performance from January through to March this year. But in a departure from other studies, the investigation added in controls to filter out the effects of variables such as accounting-based measures, liquidity, leverage, intangible asset investment, as well as many others associated with boosting stock performance.

Once those were taken out of the equation it became clear to the researchers that ESG “is not significantly associated with stock market performance” at the beginning of the coronavirus crisis.

So the team undertook further analysis to see what was making the difference. The stats came back to say ESG could explain only 1% of Covid-19 crisis stock movement. The biggest factor was a stock’s “risk and growth potential” at 39%; the industry type at 37%; and company financials at 20%.

In short, what made the difference in share price was a company’s stock of intangible assets, as well as elements such as leverage and cash positions. “These results suggest innovation-related assets rather than social capital investments offer the greater immunity to sudden, unanticipated market declines,” the report says.

Negative association

Even the recovery period—the second quarter this year—provided little reassurance about ESG’s protective qualities. The researchers found ESG factors were “significantly negatively associated with returns”.

It all makes grim news for those who believe ESG factors are the answer to corporate durability, especially as governments continue to address climate change and experts predict we can expect to experience more frequent global crises in the future.

“The extensive analyses presented in this study suggest that the celebration of ESG as a resilience factor in time of unexpected crisis is, at best, premature, or at worst, misplaced,” the writers conclude.

This will be difficult news for investors, and raise questions about the usefulness of ESG indices. Boards too may need to rethink their approach to ESG.

  • Facebook
  • Twitter
  • Google+
  • LinkedIn
  • Mail

Related Posts

  • MHP chair offers a case study in crisis leadership in Ukraine
    March 8, 2022
    Ukrainian soldier and flag

    John Rich is co-ordinating MHP's distribution drivers throughout the country: "If we fail the biggest distribution of food in Ukraine fails.”

  • In-house lawyers concerned about legal implications of ESG disclosures
    September 21, 2021
    Board members looking at corporate reports

    Survey reveals that while US companies are happy to invest in ESG, their lawyers fear legal risks involved in increasing disclosures.

  • What Ukraine teaches us about effective leadership in a crisis
    April 25, 2022
    President of Ukraine Volodymyr Zelensky visits Bucha, 4 April 2022

    In conflicts and crises, people look to both political and business leaders for reassurance, competence and calmness under pressure.

  • Investor pressure 'should be primary tool' in changing firms' ESG behaviour
    November 16, 2021
    Green stock market graph

    Study concludes investors are better placed to correct the behaviour and decision-making of boards than rafts of new ESG regulation.

For thoughtful journalism, expert insights on corporate governance and an extensive library of reports, guides and tools to help boards and directors navigate the complexities of their roles, subscribe to Board Agenda

coronavirus, crisis management, ESG, ESG ratings, investment, resilience, stocks, US

Search


Sign up to our Newsletter

Receive independent news, thoughtful journalism & expert insights about leadership, corporate governance & key boardroom issues straight to your inbox every week.

SIGN UP

Follow Us

 

 

 

 

Most Popular

  • Audit reform in the UK risks ‘losing momentum’
  • Activist investor campaigns rise back up to pre-Covid levels
  • How to ensure stakeholders trust your sustainability reporting
  • Elon Musk weighs in against ISS and Glass Lewis
  • Climate litigation: how 2022 will shape 2023
 

Featured Partner Profile

Diligent

Diligent

Diligent Corporation, which was founded in 2001, is headquartered in New York, NY with a European HQ in London. Diligent’s modern governance platform empowers leaders and teams at every level of the organisation to digitally transform and create ...

Featured Partner Resources

2022 AGM Season Forecast: An Eye on The Horizon

To help prepare for AGMs in 2022, Equiniti (EQ) hi...

Stakeholder Engagement: A Roadmap for UK Plc Boards

This guide aims to provide directors and their col...

Digital Boards: How Technology Adoption is Driving Culture Change and Resiliency

Digital tools proved their worth to boards during ...
Leadership in AI report

Leadership in AI

This report from Board Agenda and Mazars, in assoc...
Creativity in a Crisis: a Boardroom Map for Innovation

Creativity in a Crisis: a Boardroom Map for Innovation

In the uncertain times at the height of any crisis...
Board Directors Guide to D&O Liability Insurance - November 2020 - AIG & Board Agenda

Board Directors' Guide to D&O Liability Insurance

Directors face liability over a range of new threa...
Leadership-in-Risk-Management-Board-Report

Leadership in Risk Management: Board Report

Board Agenda, in association with Mazars and INSEA...
Director's Guide to Internal Investigations

A Director's Guide to Conducting Internal Investigations

An internal investigation must be handled meticulo...

 


 

ADVERTISE – FREE CORPORATE LISTING

FREE - Add your company profile to our Corporate & Advisory Directory.
ADD

ADVERTISE – PROMOTE YOUR REPORTS & WHITEPAPERS

FREE - Add your company profile to our Corporate & Advisory Directory.
Add Resource

Register Free

Register to receive free article views, selected resource downloads, and all the latest news alerts straight to your inbox. Register


  • Editors & Contributors
  • Editorial Advisory Board
  • Corporate & Advisory Services
  • Media Marketing Solutions
  • Contact Us
  • Careers
  • Board Director Network
  • Terms & Conditions
  • Privacy Policy
  • Cookies
  • Sitemap
|