ESG Risks and Stock Price Reactions: Evidence from the U.S. and European Stock Markets

This paper investigates whether RepRisk ESG events affect stock market reactions by distinguishing between ESG incidents and subsequent ESG rating changes. Using data from 1614 companies listed in the Standard & Poor’s (S&P) 500 and the Euro Stoxx 600, we identify 135,694 ESG events over the period 2015–2024. Event-induced abnormal returns are estimated using the Capital Asset Pricing Model (CAPM) and the Fama–French three-factor model (FF3). The results show that several ESG incident characteristics are significantly associated with cumulative abnormal returns, whereas ESG rating changes provide only limited evidence of market reactions. While these findings are largely robust across alternative expected return models and event windows, the effects are generally more pronounced for U.S. firms than for European firms. Overall, the results suggest that capital markets respond more strongly to ESG incident information than to subsequent ESG rating changes, consistent with the view that incidents convey more timely information, whereas rating changes primarily summarize information already reflected in stock prices.