The Influence of ESG-scores on Stock Returns in Emerging and Developed Markets

Sammanfattning

The integration of environmental, social, and governance (ESG) factors in investment decisions and corporate practices has gained momentum, reflecting the global focus on sustainability and ethical practices. This study investigates the relationship between ESG-scores and stock returns from 2019 to 2022 across three industry groups – manufacturing and raw materials, technology and media services, and consumer goods – in two contrasting economies: the emerging market of China and the developed market of Japan. Employing the Fama and French five factor model, portfolios are constructed and categorised by ESG scores to assess the presence of abnormal returns in each respective market. Our results reveal the following discrepancies: abnormal returns are more apparent in high-ESG portfolios in China’s industrial sector, whereas in Japan’s technology sector, low- and mid-ESG portfolios exhibit superior performance. In contrast, consumer goods sectors in both economies display no significant results. These findings suggest that ESG investment strategies may yield varying results depending on industry and market maturity. By bridging insights from emerging and developed economies, this study contributes to the literature on ESG-driven financial performance and implications for global investment strategies.