ESG investments in the Covid-19 pandemic

Abstract

The objective of this study is to analyze the effect of investment in environmental, social and governance (ESG) factors on the financial performance of Brazilian companies and on the accumulated abnormal return during the Covid-19 pandemic period. To this end, two theoretical portfolios of the Brazilian market were compared: one composed of ISE (Sustainability Index) companies and the other of Ibovespa companies. The impact of financial performance variables on Abnormal Returns during the Covid-19 pandemic period was analyzed using the Event Study method. This study obtained mixed results. ISE companies obtained higher CAR for the period of the pandemic, demonstrating greater resilience during the crisis. In addition, lower volatility was observed for ESG stocks. The results of the regression models did not identify a positive relationship between profitability indicators and CAR for ISE companies. On the other hand, in line with the hypotheses of this study, there was a positive association between Tobin’s Q of ESG companies and CAR. This research can be useful for academics and investors, as it expands the evidence of ESG investments in terms of financial performance in an emerging market, such as Brazil, and their resilience in times of crisis. Finally, managers, investors, creditors and other professionals may be interested in the results of this research, since ESG investments can develop a competitive advantage, contributing to the long-term success of the business.