Does a High ESG Score Pay Off During the Pandemic Outbreak?

A key aspect of creating financially effective business strategies is the development of efficient management methods at the meeting point between the competing interests of an organization’s diverse stakeholders, making it possible to generate added value for some of them. Stakeholder management, together with its underlying concepts such as corporate social responsibility (CSR), contributes to increasing the viability of an organization’s system as well as the system of its environment, including the financial market. This is of crucial importance in times of crisis, when a system’s viability is particularly put to the test. In this chapter, we tackle this actual problem under the unprecedented circumstances of the COVID-19 pandemic outbreak. In our research, we assume there is a positive relation between social responsibility, the stakeholder approach to corporate governance and a company’s financial performance, and we take as a proxy for the latter the stock returns of publicly listed companies. We examine US and European companies with high and low environmental, social, and governance (ESG) scores in 18 countries and 11 industries in the period January–June 2020. Their ESG profile is determined using the SAM Corporate Sustainability Assessment (CSA) and Sustainalytics’s ESG Risk Ratings. We find evidence that, under pandemic circumstances, delivering value to a broader spectrum of stakeholders (reflected by a high ESG score) does not necessarily immediately (in the short run) protect or enhance the value for shareholders (measured by annualized stock returns) but does not deteriorate the value either.