ESG Ratings and Financial Performance : An Empirical Investigation of the Link Between ESC Ratings and Stock Performance in Emerging Markets
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- Master Thesis 
Our study aimed to investigate the relationship between Environmental, Social, and Governance (ESC) performance and financial performance in emerging markets. We collected ESC scores from three different rating providers (Bloomberg, Refinitiv, and Sustainalytics), which were used to construct two portfolios consisting of high- and low ESC-rated firms, and a resulting high minus low (high-low difference) portfolio. We hypothesized that investors in emerging markets would pay a premium for holding high ESC-rated firms over low ESC-rated firms. To test this hypothesis, we applied the Fama-French framework to examine historical stock returns for each portfolio over the four years from 2018 to 2021. While we observed statistically and economically significant results for both the high- and low portfolio, we did not find any significant monthly abnormal returns for the high-low difference portfolio. This suggests that we are unable to conclusively reject our hypothesis about the relationship between ESC performance and financial performance in emerging markets. However, our study still contributes to a better understanding of this underresearched area and provides valuable insights into the performance of high- and low ESC-rated firms during a period of high market volatility.