Sustainable investing performance during COVID-19 crisis

ESG score has been gaining popularity in decision-making of individual and institutional investors as demand for actions for sustainable development is increasing. Sustainable investing and in- stitutional frameworks have forced companies to take sustainability actions into consideration in terms of Corporate Social Responsibility (CSR). CSR performance can be measured with ESG score and investors could use that score in their investment decision-making together with tra- ditional financial measures. There has emerged a remarkable increase of volume and product- offering related to sustainable securities, and it is more convenient for investor to choose certain thematic or best-in-class sustainable stocks that are align with individual investing targets. As a rather proactive investing style, sustainable investing aims to gain long-term returns, while bal- ancing firms’ possibilities and risks derived from ESG information. Relationship between ESG score and stock performance has been increasingly studied in academic research. This paper examines, whether firm’s engagement to CSR pays off during market turbulence, more specifi- cally during COVID-19 collapse period that is defined as a timeframe between 3. February and 23. March 2020. According to academic research, there is not clear consensus if high ESG com- panies manage to be more resilient during crisis. The paper considers the market area of United States with dataset consisting of S&P500 com- panies. Empirical results show that ESG score explains significantly, but rather weakly the stock price performance. Other individual variables that are explaining stock returns during the period are related to financial flexibility and profitability measures. High ESG firms with momentum, profitability, cash reserves and low level of long-term debt are estimated to have increased pos- sibility to be more resilient during the collapse period of COVID-19 crisis. This paper confirms the theory that firm’s engagement to CSR can be seen as an element that increases investor’s value and wealth, while it also decreases information asymmetry between shareholders and management. Company can reach more sustainable conditions, while maintaining competitive- ness.