ESG return comovement

We find return comovement in stocks that conduct a similar extent of environmental, social, and corporate governance (ESG) activities. The return comovement is stronger among firms with lower ESG scores than among firms with higher ESG scores. Consistent with the affordable fund view, high-growth companies may be more likely to allocate funds toward achieving profitability rather than conducting ESG, resulting in higher return comovement among their stocks. Therefore, ESG return comovement likely arises from fundamentals, particularly asset growth. In addition, we find weak evidence that ESG return comovement is related to investor recognition or information diffusion in excess of the fundamentals.