The impact of ESG controversies and ESG performance on stock return volatility

Abstract

This study examines the impact of environmental, social and governance performance and controversies on stock return volatility. For this purpose, I considered a sample of 1095 European companies from 23 countries during 2019–2022 and it was applied panel regression. This study found a direct influence of ESG controversies on stock return volatility, but the coefficient of the dependence is close to zero. Similarly, the ESG performance has a direct impact on volatility and the coefficient of dependence is different from zero. This result shows that companies with a better performance on ESG face higher stock return volatility. The study findings enrich the academic literature and can help investors in the investment decisions making.