The Impact of ESG Performance on Equities: The Case of the US Transport

This study explores the impact of Environmental, Social, and Governance (ESG) performance on the average return and volatility of stocks in the U.S. transport sector. It aims to bridge the gap in literature concerning the direct effects of ESG performance on stock idiosyncratic volatility, focusing particularly on large U.S. transportation firms. Utilizing a quantitative research approach, the study conducted correlation and regression analyses. Data were collected on key metrics such as average returns, standard deviations, and ESG scores for selected stocks from publicly available financial databases. The analysis involved Pearson and Spearman correlation coefficients and multiple linear regression models to assess the relationships between ESG scores/disclosures and stock performance indicators. The study found that ESG scores have limited direct impact on average returns and volatility, which are often masked by other economic factors. However, high levels of ESG disclosure correlated negatively with average returns and positively with reduced volatility, indicating that while transparency might lower returns, it potentially stabilizes stock volatility.These findings suggest that higher ESG disclosures, while possibly deterring short-term returns, contribute to reducing volatility, highlighting the nuanced role of ESG factors in investment decisions. The study recommends that transportation firms balance their level of ESG disclosure to optimize stock performance, suggesting a strategic approach to ESG reporting.