Did ESG portfolio augment investors’ wealth during Covid19? Evidence from Indian stock market

Abstract

Purpose This paper aims to empirically examine the performance of the high-ESG (environment, social and governance) portfolio vis-à-vis the low-ESG portfolio at the Indian stock market before and during the Covid19 pandemic. Design/methodology/approach The absolute rate of return and several risk-adjusted performance measures, for instance, Sharpe ratio, Modigliani–Modigliani measure, Treynor ratio, Jensen’s alpha, information ratio, Fama’s decomposition measure and Fama and French’s three-factor model, have been used in this study along with the t-test. Findings All three indices (CARBONEX, GREENEX and BSE 500) had better returns during Covid19 period as compared to the pre-Covid19 period. However, these returns were not statistically significant. During Covid19, the risk of the indices also rose, but they provided better returns for the additional risk taken. Finally, it is concluded that the performance of high-ESG and low-ESG stock portfolios did not differ significantly in both periods. Practical implications The study is relevant to individual and institutional investors, financial advisors, portfolio managers, corporations, policymakers, market regulators and society at large. Social implications This study emphasized the need to expand the role of ESG investment in India for the benefit of people, communities and society as a whole. Originality/value This research is the first of its kind, to the best of the authors’ knowledge, that compares the performance of a high-ESG portfolio with a low-ESG portfolio both before and during the Covid19, particularly in the Indian context.

Guest editorial: Driving impact through responsible investing and finance

“…While a direct causal relationship between increased investment in ESG practices and improved financial performance is not always apparent, especially in the shorter run (in line with previous rather ambiguous evidence on ESG investing, e.g. Matos, 2020), the majority of the papers included in the SI make the case for an expanded role of the financial sector in supporting the sustainability transition (Sood et al, 2023). Financial markets, by engaging in responsible investments and ESG approaches, can accelerate progress towards sustainable development, and industries such as asset management are considered critical in this process (Folqu e et al, 2023).…”

“…Within the first dimension ESG investment performance compared to non-ESG or low-ESG , Sood et al (2023) empirically examine the performance of high-ESG portfolio vis-à-vis low-ESG portfolio at the stock market of India pre and during the Covid-19 pandemic in their paper titled “Did ESG portfolio augment investors’ wealth during Covid-19? Evidence from Indian stock market”.…”

“…As the SI started to come together between the turbulent times of the Covid-19 pandemic, a sample of papers also cover the impact of Covid-19 and other socio-economic developments (Sood et al , 2023). Overall, the authors share the perspective that the financial sector has a key role in achieving the UN SDGs and calls for concerted effort in developing ESG strategies, responsible investing approaches and regulatory frameworks to invest for the benefit of people, communities and society as a whole.…”