ESG in the spotlight: does media coverage drive stock market reactions?

Purpose In recent years, Environmental, Social and Governance (ESG) has gained significant attention, and managers must acknowledge its impact on a company’s reputation. However, stakeholders do not consider social responsibility alone to be sufficient for providing a comprehensive evaluation on sustainability. This study aims to assess the impact of news related to ESG on stock market reactions. Design/methodology/approach This study collected ESG news data from online business media from 2021 to 2023 for 30 companies listed on the Indonesia Stock Exchange classified as the IDX ESG Leaders. The news was then coded as either positive or negative and treated as the event date. An event study approach was used to investigate the presence of abnormal returns within event windows. One-sample difference tests were then conducted to investigate whether the events result in average and cumulative abnormal returns. Findings The results of the study show that ESG news can cause negative market reactions. This is due to overly high market expectations, irrational investor actions, and the characteristics of the stock market in Indonesia that do not fully understand the concept of ESG. The results of this study also indicate that the signal mechanism has been running effectively and is considered relevant by investors in the stock market. This study emphasizes the importance of transparency and balance in ESG reporting to mitigate negative effects on the stock market and increase investor confidence in the long term. Originality/value This study contributes to the existing literature on ESG news in the media and its impact on stock market reactions. Furthermore, this study encourages investors and other stakeholders to consider media coverage of ESG performance as a valuable source of information, enabling them to more effectively hold companies accountable for their ESG disclosure practices and to make informed investment decisions.