Sustainable investing and stock performance during the pandemic : Evidence from Sweden

Abstract: There is mixed evidence in the existing literature whether environmental, social and governance (ESG) activities are valuable during times of financial crisis. Proponents of ESG argue that such endeavors may act as a resilience factor for companies during market downturns. The COVID-19 pandemic represents an unexpected and exogenous shock to the economy, offering a unique opportunity to test the association between a firm's ESG ratings and stock performance. Furthermore, recent studies relate a company’s effectiveness of ESG activities to their respective country of operations overall trust levels. This study addresses the current research gap on this issue by analyzing data on 632 Swedish public companies, as Sweden is regarded as a high-trust country. The results suggests that stocks with higher ESG ratings does not exhibit higher returns and lower stock volatility during the initial collapse period of 2020. However, during the following recovery period, represented by the second quarter of 2020, ESG scores were in fact associated with higher stock return and lower stock volatility. This study furthers understanding of the relationship between ESG dimensions and financial performance in countries with high levels of trust.