An exploration of ESG activities and firm performance of global companies during the COVID-19 pandemic

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Abstract

This study aims to discern the caliber of environmental, social, and governance (ESG) disclosures and understand their interrelation with corporate financial health during the global health crisis. Employing two-year lagged models and ordinary least squares (OLS) regression, we analyzed firms within the S&P Global 1200 index using data from S&P Capital IQ Pro. The dataset includes ESG discrete scores, composite ESG scores, and additional ESG metrics spanning fiscal years 2018–2019 and their impact on firm performance during fiscal years 2020–2021. Our sample comprises 1200 publicly listed entities from approximately 29 nations, representing over seventy percent of global market capitalization. The analysis reveals a negative correlation between ESG scores and both cumulative raw returns and abnormal stock returns during the pandemic. However, ESG scores are negatively associated with stock volatility and idiosyncratic volatility, indicating reduced risk and greater stability for long-term investors. These findings support the hypothesis that superior ESG performance contributes to stock price stability during crises but may not enhance short-term financial returns. This study underscores the importance of ESG activities in mitigating risks and enhancing resilience, aligning with extant literature. However, our results differ from those of Albuquerque et al. (2020), who found that high environmental and social scores led to higher returns and lower volatility in the first quarter of 2020. In addition, our results also differ from Engelhardt et al. (2021) and Lins et al. (2017), both of whom identified that firms with strong corporate social responsibility (CSR) practices exhibit higher returns and lower volatility, especially during crises.

Keywords: COVID-19, ESG, Sustainability, Corporate Performance, Tobin’s Q

Authors’ individual contribution: Conceptualization — S.S.R. and N.J.; Methodology — S.S.R. and N.J.; Software — S.S.R.; Validation — S.S.R.; Formal Analysis — S.S.R.; Investigation — S.S.R.; Resources — S.S.R.; Data Curation — S.S.R.; Writing — S.S.R. and N.J.; Visualization — S.S.R.; Supervision — S.S.R. and N.J.; Project Administration — S.S.R. and N.J.; Funding acquisition — S.S.R.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: C1, F0, M4

Received: 26.07.2024
Accepted: 06.12.2024
Published online: 09.12.2024

How to cite this paper: Rao, S. S., & Juma, N. (2024). An exploration of ESG activities and firm performance of global companies during the COVID-19 pandemic. Corporate Ownership & Control, 21(4), 15–27. https://doi.org/10.22495/cocv21i4art2