Sustainability and Shareholder Value: The Impact of ESG Pillars on Emerging Market Stock Returns

Abstract

This article examines whether investing in ESG factors affects the stock returns of corporations in the MSCI Emerging Markets Index across EMEA countries. ESG pillar scores are used as independent variables. Financial ratios, inflation, and the interest rate are control variables. We have observed that ESG pillar scores are significantly related to stock returns when the effects of specific firm- and market-specific variables are held constant. We recommend that portfolio managers closely monitor improvements in ESG pillar scores to predict corporate stock returns in emerging markets.