Does ESG investing pay-off? An analysis of the Eurozone area before and during the Covid-19 pandemic

We examine whether the stock return performance of 620 Eurozone companies based on their environmental, social and governance (ESG) ratings both before and during the Covid-19 pandemic on both a nominal and risk adjusted basis. We also look at how country level governance indicators interact with our samples of ESG_High and ESG_Low companies to affect both nominal and risk adjusted investment returns. We use both panel data and cross-sectional regressions as well as the difference-in-differences approach to derive the empirical results. We generally find some evidence that highly rated ESG firms performed slightly worse than lower rated ESG both overall and during the pandemic. However, once we control for governance at the country level, we find that in high governance scoring countries ESG_High companies perform better than ESG_Low companies. Finally, when we examine the relative performance of EU companies compared to companies in economies less impacted by the Covid-19 pandemic, namely South Korea and Australia, we find that during the pandemic, the South Korean and Australian companies performed much better than their counterparts in Europe.