2022 Reports

Do Environmental, Social and Governance (ESG) Practices Affect Abnormal Returns During the COVID-19 Pandemic? Evidence from Brazil.

Carvalhal, Andre; Nakao Nakahodo, Sidney

This study examines the effect of environmental, social and governance (ESG) practices on Brazilian stock returns during the COVID-19 pandemic. Brazil provides interesting insights for this analysis, because it is the second most severely affected country in terms of number of deaths due to COVID-19. Moreover, Brazil has a crucial role to the ESG agenda worldwide, because it is a global agricultural powerhouse and home of one of the world's most important tropical forests. We provide evidence that Brazilian companies with good ESG practices have significantly higher returns during the COVID-19 crisis. This superior performance is associated with ESG broadly but not with governance (the G from ESG) separately. Our findings are robust to several industry and firm characteristics. Our conclusions contribute to the literature and support the hypothesis that ESG companies have better returns and are more resistant to stock market declines during crises. From a country perspective, we highlight that the COVID-19 pandemic can be a wake-up call for decision makers and investors to improve the ESG agenda in Brazil.

Keywords: environment, social and governance, abnormal returns, COVID-19, Brazil, crises