Sustainability and shareholder value

: exploring ESG-stock return dynamics in the S&P500 and STOXX 600

Abstract

The interaction between Environmental, Social, and Governance (ESG) performance and stock returns has increasingly garnered attention amid evolving regulatory frameworks and market expectations. This thesis investigates the bidirectional relationship between ESG scores and stock returns in the S&P500 and STOXX600 indices, focusing on regional and temporal variations. The findings reveal that higher ESG scores are associated with a short­term trade off in stock returns, reflecting regulatory and societal pressures. Conversely, stock returns have a significant negative effect on ESG performance, indicating that firms prioritizing higher financial returns may reduce their focus on sustainability initiatives. Firm­specific characteristics, such as size and leverage, play critical roles in shaping ESG outcomes but exhibit nuanced regional dynamics. This research underscores the complexities and trade­offs in aligning financial performance with sustainability initiatives. It provides valuable insights into corporate strategy and investment behavior within the evolving ESG landscape.

Date of Award	14 Feb 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Zoe Venter (Supervisor)