Does ESG Matter in China? —— Evidence from the Stock Price Performance during COVID-19
Research Report
This report is a synopsis of a working paper “The role of ESG performance during times of financial crisis: Evidence from COVID-19 in China” (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3627439).
Abstract
We examine two ESG-related investment issues. First, using industry neutral, bi-annually re-balanced portfolios constructed by ESG scores, we track ESG-tilted investment portfolio performance for the CSI300 constituent stocks during 2015-2020. The differential cumulative return for the high ESG vs the low ESG group is about 12.83% during the July 2017-December 2019 period, and for the whole sample is 9.4%. These figures imply that, even in normal times, an industry neutral ESG based investment strategy allows an investor to earn substantially higher returns in the Chinese market. Second, we explore the impact of COVID-19 pandemic on the stock price performance. Based on a short-term event window, there exhibits a positive relationship between stock returns and ESG ratings during COVID-19 outbreak. This implies that, although China is in the early stage of ESG investing and a lot of investors are ‘unsophisticated’ retail investors, there are preferences for high ESG firms, especially during the crisis period.