Market response to environmental social and governance performance: A global analysis

Market remediation of the cost of externalities depends on the market’s ability to read and interpret environmental, social, and governance (ESG) reporting. This study is designed to estimate the market reaction to ESG performance using a comprehensive dataset of 5038 firms from 73 countries for 2016–2021. Overall, we found an asymmetric response highlighting ESG as a source of friction for market efficiency. We further conducted a geographical analysis and found that the results are biased toward different regions. The European Union market indicators exhibited a negative association, which is consistent for each model. This symmetric behavior authenticates EU initiatives for the internalization of ESG factors. In comparison, this behavior is asymmetric for the Americas, Asia, and the Oceanian and African capital markets. The results are robust to alternative econometric methodologies and each pillar of ESG disclosure.