Exploring the Impact of Environmental, Social, and Governance Ratings in Investment Decisions During Uncertain Times: A Focus on the Energy Industry

Authors

  • Mamdouh Tlaty National School of Commerce and Management, Ibn Tofail University, Kenitra, Morocco, Campus universitaire Laboratory for Research in Organizational Management (LARSGO)
  • Marouane Nakhcha National School of Commerce and Management, Ibn Tofail University, Kenitra, Morocco, Campus universitaire Laboratory for Research in Organizational Management (LARSGO)
  • El Mahdi El Idrissi National School of Commerce and Management, Ibn Tofail University, Kenitra, Morocco, Campus universitaire Laboratory for Research in Organizational Management (LARSGO)
  • Younes Ouahi Rabat Business School International University of Rabat, Morocco BEAR (Business, Économie et Actuariat) Lab

Keywords:

ESG, Financial Crisis, Investment Decision, Energy Sector, Portfolio Risk

Abstract

With sustainability awareness on the rise around the world, and as global awareness of sustainability grows, it's inevitable that the financial sector will have to adapt. More than just a numbers-based assessment, modern finance is faced with the integration of environmental, social and governance (ESG) standards. Our research explores how these ESG standards influence investment decisions, especially in uncertain contexts such as global conflicts or pandemics. The growing importance of these considerations is underlined by regulatory developments, which underscore the need for investors, particularly institutional and corporate investors, to factor ESG criteria into their decision-making processes.

References

Berg, F., Kölbel, J., & Rigobon, R. (2019). Aggregate Confusion: The divergence of ESG ratings. MIT Sloan Research Paper No. 5822- 19. http://dx.doi.org/10.2139/ssrn.3438533

Broadstock, D. C., Chan, K., Cheng, L. T. W., & Wang, X. (2021). The role of ESG performance during times of financial crisis: Evidence from COVID-19 in China. Finance Research Letters, 38, 101716. https://doi.org/10.1016/j.frl.2020.101716

Caflisch, R. E. (1998). Monte Carlo and quasi-Monte Carlo methods. Acta Numerica, 7, 1-49. https://doi.org/10.1017/S0962492900002804

Cao, J., Titman, S., Zhan, X., & Zhang, W. (2020). ESG preference, institutional trading, and stock return patterns (No. w28156). National Bureau of Economic Research.

Chatterji, A., & Levine, D. (2006). Breaking down the wall of codes: Evaluating non-financial performance measurement. California Management Review, 48(2), 29-51.

Díaz, V., Ibrushi, D., & Zhao, J. (2021). Reconsidering systematic factors during the Covid-19 pandemic - The rising importance of ESG. Finance Research Letters, 38, 101870. https://doi.org/10.1016/j.frl.2020.101870

Fama, E. F., & MacBeth, J. D. (1973). Risk, Return, and Equilibrium: Empirical Tests. Journal of Political Economy, 81(3), 607-636. http://www.jstor.org/stable/1831028

GSE. (2021, 26 avril). SRI label. https://www.lelabelisr.fr/glossaire/esg/

Hardy, C. (2020-2021). Has the Covid-19 crisis changed the way investors look at ESG criteria in their investment strategy?

Harvard Business School Online. (2022, 15 septembre). 7 ESG investment strategies to consider. Business Insights Blog. https://online.hbs.edu/blog/post/esg-investment-strategies

Hawley, J. (2017). ESG ratings and rankings. TruValue Labs. https://www.truvaluelabs.com/wp-content/uploads/2017/12/ESGRatings-and-RankingsAll-Over-the-Map.pdf

Hoffmann, A. O., Post, T., & Pennings, J. M. (2013). Individual investor perceptions and behavior during the financial crisis. Journal of Banking & Finance, 37(1), 60-74.

Leite, P. E. C., & Cortez, M. C. (2015). Performance of European socially responsible funds during market crises: Evidence from France. International Review of Financial Analysis, 40, 132-141. https://doi.org/10.1016/j.irfa.2015.05.012

Mǎnescu, C. (2011). Stock returns in relation to environmental, social and governance performance: Mispricing or compensation for risk? Sustainable Development, 19(2), 95-118. https://doi.org/10.1002/sd.510

Nassar, L. (2020). ESG IN EQUITY COUNTRY SELECTION.

Pedersen, L. H., Fitzgibbons, S., & Pomorski, L. (2021). Responsible investing: The ESG-efficient frontier. Journal of Financial Economics, 142(2), 572-597. https://doi.org/10.1016/j.jfineco.2020.11.001

Riedl, A., & Smeets, P. (2017). Why do investors hold socially responsible mutual funds? The Journal of Finance (New York), 72(6), 2505-2550. https://doi.org/10.1111/jofi.12547

Schueth, S. (2003). Socially Responsible Investing in the United States. Journal of Business Ethics, 43(3), 189-194. https://doi.org/10.1023/A:1022981828869

Skadden, Arps, Slate, Meagher & Flom LLP. (2023, 1er février). ESG in 2022 and Predictions for 2023. https://www.skadden.com/insights/publications/2023/02/esg-in-2022- and-predictions-for-2023

Wang, A. Y., & Young, M. (2020). Terrorist attacks and investor risk preference: Evidence from mutual fund flows. Journal of Financial Economics, 137(2), 491-514.

Downloads

Published

2024-08-22

How to Cite

Tlaty, M., Nakhcha, M., El Idrissi, E. M., & Ouahi, Y. (2024). Exploring the Impact of Environmental, Social, and Governance Ratings in Investment Decisions During Uncertain Times: A Focus on the Energy Industry. ESI Preprints, 32, 328. Retrieved from https://esipreprints.org/index.php/esipreprints/article/view/1255

Issue

Section

Preprints