Did Environmental, Social, and Governance (ESG) Practices Affect Abnormal Returns During the COVID-19 Pandemic? Evidence From Brazil

Abstract

This study examines the effect of environmental, social, and governance (ESG) practices on Brazilian stock returns during the COVID-19 pandemic. Brazil provides interesting insights because it has a crucial role in the ESG agenda worldwide and was the second most severely affected country in terms of number of deaths due to COVID-19. We provide evidence that Brazilian companies with good ESG practices had higher returns during the COVID-19 crisis. This superior performance is associated with ESG broadly, but not with governance separately. Our findings are robust to several industry and firm characteristics and support the hypothesis that ESG companies are more resistant during crises.

RESUMEN

Este estudio examina el efecto de las prácticas de ASG en los retornos de acciones brasileñas durante la pandemia de COVID-19. Brasil proporciona informaciones interesantes porque desempeña un papel crucial en la agenda de ASG a nivel mundial y fue el segundo país más afectado en términos de número de muertes debido a COVID-19. Proporcionamos evidencia de que las empresas brasileñas con buenas prácticas de ASG tuvieron mayores retornos durante la crisis de COVID-19. Este rendimiento superior está asociado con ASG en general, pero no con la gobernanza por separado. Nuestros hallazgos son sólidos en relación con varias características de la industria y la empresa y respaldan la hipótesis de que las empresas con implementación de ASG son más resistentes durante las crisis.

RESUMO

Este estudo examina o efeito das práticas de ASG sobre o retorno das ações brasileiras durante a pandemia da COVID-19. O Brasil fornece perspectivas interessantes porque tem um papel crucial na agenda ASG em todo o mundo e foi o segundo país mais gravemente afetado em termos de número de mortes devido à COVID-19. Nós fornecemos evidências de que empresas brasileiras com boas práticas de ASG tiveram retornos mais altos durante a crise da COVID-19. Este desempenho superior está associado ao ASG de forma geral, mas não à governança separadamente. Os nossos resultados são robustos para várias caraterísticas da indústria e das empresas e apóiam a hipótese de que as empresas ASG são mais resistentes durante crises.

Keywords:

• Abnormal returns
• Brazil
• COVID-19
• crises
• environment
• social and governance

Notes

1 In this study, we use the term ESG instead of CSR because the former is broader and combines the environmental, social, and governance dimensions.

2 We also use the constant-mean-return model as a robustness check, but the results (not reported due to space constraints but available upon request) are similar to those of the market model.

3 We also calculate the median ARs and CARs and their differences between ESG and non-ESG firms. Due to space limits, the results are not reported but are available upon request. The conclusions for the mean and median abnormal returns are substantially the same.

Additional information

Funding

This work was supported by FAPERJ (Fundação de Amparo à Pesquisa do Estado do Rio de Janeiro).