The Influence of ESG Performance on Euronext Stock Returns

Luís Costa, Elisabete Vieira, Mara Madaleno

Abstract


Considering the growing relevance of environmental, social and governance (ESG) factors in investment decision-making, this study investigates the relationship between the ESG performance of Euronext companies and their stock returns. The central question is the need to understand whether better ESG performance translates into superior financial returns for investors and what factors may influence this relationship. The empirical study focuses on the period between 2020 and 2022, on a sample of companies that are part of the Euronext financial centers in Lisbon, Amsterdam, Paris, and Brussels. The results indicated a positive and statistically significant relationship between Sustainalytics' ESG rating and stock returns, suggesting that companies with stronger ESG practices tend to have better financial performance. Additionally, the study observed a negative impact of leverage and inflation on stock returns, while ROA and real GDP growth had a positive effect. However, no significant relationship was found between companies belonging to the Eurozone ESG large 80 index (ESG 80) and stock returns, indicating that inclusion in the index may not guarantee superior returns. Investors are advised to carefully consider the ESG performance of individual companies for a profitable investment strategy. Euronext is recommended to provide an individual ESG rating to aid this analysis. These conclusions contribute to understanding the growing importance of sustainability in investments and highlight the need for a more detailed analysis of companies' ESG practices.


Keywords


Stock Returns, Euronext, Eurozone ESG Large 80, ESG, Sustainable Investment

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References


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