ESG ratings and macroeconomic risks in the Asian emerging stock markets

We examine how equity returns of ESG-rated firms in the emerging Asian market respond to the impact of macroeconomic shocks. By studying companies across nine emerging Asian countries, we find no evidence of an outperforming pattern in the stock returns of strong ESG-performing firms. However, we observe that strong ESG-performing firms tend to have less volatility in their equity returns, while weak ESG-performing firms exhibit more volatile equity returns. When it comes to the influence of macroeconomic factors on ESG-rated firms, we highlight the significant impact of demand shocks on the stock values of ESG companies, especially in the case of weaker ESG firms. Thus, our findings suggest that in emerging markets, firms with high ESG ratings tend to safeguard their equity prices against demand shocks and fluctuations in equity values, setting them apart from their low ESG-rated counterparts.