ESG fails to immunize stocks against the COVID-19 market crash

Posted by PHILIP JOOS - Sep 08, 2020

Environmental, Social and Governance (ESG) investments are praised worldwide as the solution to environmental, social and societal problems, and would be the best vaccine during the Covid-19 crisis. Our research findings suggest that this is not the case, and that traditional measures such as liquidity and innovative capacity better describe crisis resilience. While corporate social responsibility companies may benefit in the longer term, it is advisable for investors to be critical of funds that promote 'ESG' as a crisis vaccine in the short term.  

Although institutional investors, fund managers and the international financial press often claim otherwise, ESG factors do not lead to better stock market performance in times of crisis. An analysis among 1,600 U.S. companies shows that a higher ESG performance does not make companies more resilient to the negative stock market impact of the corona pandemic. Sustainable investors appear to perform even worse during periods of stock market recovery.

We also show that ESG investments only account for 1% of the stock market returns of companies during the Covid crisis. ESG also has no predictive value for how a company will perform in the event of a subsequent crisis, in contrast to – again – the combination of financial flexibility and innovative power of a company (both measured from a company's financial statements), and traditional risk, industry and growth factors. Our study has implications for investors and enforcement agencies, including SEC and European corporate reporting watchdogs. 

Further readings:

SSRN link: Demers, Elizabeth and Hendrikse, Jurian and Joos, Philip and Lev, Baruch Itamar, ESG Didn’t Immunize Stocks In the COVID-19 Crisis, But Investments in Intangble Assets Did (Journal of Business Finance & Accounting, 2021 forthcoming). Available at SSRN:  or

Harvard Law School blog:

Financial Times Moral Money discussion: