Firm ESG Commitment and the financial markets: market reactions to ESG related news

This master’s thesis examined existing literature and use event studies to investigate the impact of negative and positive ESG related news on the market value of firms with different ESG commitments. The ESG ratings of 221 firms are collected from MSCI and Sustainalytics websites to classify the firms into three groups; high, moderate, and low ESG commitments firms. The market reactions to the groups of firms are studied around two general events, Event 1: The declaration of the victory of Joe Biden in the 2020 U.S. elections, Event 2: The declaration of COVID-19 illness as a pandemic.The results of the event studies show a negative market reaction to Event 2 for all three groups of ESG commitments over the event window, with the group of firms with low ESG commitment, by far, the first to go down. For Event 2, market reaction was only significant for the group of firms with a low ESG commitment level. I conclude that the market reacts more abruptly to firms with low ESG commitment. For positive ESG related news, the positive market reaction is more significant for firms with low ESG commitment. In case of a general market crash, the value of a low ESG committed firm might fall faster, but over time, the loss of value is around the same level for all three groups of firms