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No significant returns on sustainable investments in times of crisis

Published: 10th September 2020 Last updated: 10th September 2020

Environmental, Social and Governance (ESG) investments are widely touted as the solution to environmental, social, and societal problems and as a “vaccine” against poor stock performance in times of crisis. A study carried out by the Tilburg University researchers Philip Joos and Jurian Hendrikse, together with Elizabeth Demers (University of Waterloo) and Baruch Lev (NYU), shows that this is unlikely to be the case and that such traditional yardsticks as liquidity and innovation-based assets are better indicators of crisis period stock price resilience.

Contrary to what institutional investors, fund managers, and financial journalists often claim, sustainable stocks do not perform significantly better in times of crisis. An analysis of 1,652 American firms shows that a higher ESG performance does little to immunize companies against the stock market decline in the wake of the COVID-19 pandemic. And the performance of sustainable investors is even poorer during the recovery period. Liquidity and innovative capacity turn out to be the strongest resilience factors in times of financial crisis.

The study shows that ESG investments account for as little as 1% of stock performance during the COVID-19 crisis. It also indicates that ESG does not offer any meaningful predictive power regarding a company’s stock performance in a future crisis, as opposed to the combination of a company’s financial flexibility and its innovative strength.

ESG beleggen

Owen-Shapley regressie R2 decompositie (bron: SSRN https://ssrn.com/abstract=3675920)

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