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 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 cross sectional and panel data regressions as well as the differences in differences approach to derive the empirical results. We generally find no evidence that highly rated ESG firms performed any better or worse than lower rated ESG either before or during the pandemic. However, once we control for governance at the country level, we find that in low governance scoring countries ESG_Low companies perform better than ESG_High companies. While 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, while the ESG_High group did significantly worse throughout the entire period.