The nexus between ESG rating and stock returns: opportunities for investor

Abstract

Nowadays, environmental, social, and governance (ESG) investing gets increased academic attention and a practical spotlight. Companies listed on a stock exchange receive sustainability scores provided by rating agencies. In turn, investors seek not only to get a return in the stock market but also to construct a portfolio of companies that positively affect the economy and society while remaining ethically responsible. But is it possible to obtain sufficient returns, at the same time reaching sustainability objectives? Based on the 2023 year’s data and regression analysis, the research aims to determine the relationship between US stock return and ESG rating, as well as its separate economic, social, and governance components. The research findings demonstrate no significant relationship between stock return and ESG, including its components. The proposed framework for determining ESG and stock return nexus can be useful for individual and institutional investors in forming their investment portfolios.