Correlation and Causality Between ESG Practices and Stock Price: Evidence from Nigerian Deposit Money Banks

In the evolving global financial ecosystem, investors and stakeholders are increasingly integrating nonfinancial metrics particularly environmental, social, and governance (ESG) considerations into investment and strategic decisions. ESG practices can influence stock market performance, the direction and strength of this relationship in the Nigerian context remains under-researched and poorly understood. This study sought to investigate the relationship between ESG practices and the stock prices of Nigerian banks, controlling for bank size This study employed correlation analysis and pairwise Granger causality techniques. Correlation analysis is essential for understanding the strength and direction of the relationship between ESG indicators and stock price movements. Pairwise Granger causality, on the other hand, allows for testing the temporal direction of influence between variables, thereby addressing the question of whether changes in ESG performance “Granger-cause” changes in stock prices, or vice versa This study utilized secondary data sourced from the published annual reports and financial accounts of 12 selected deposit money banks in Nigeria over a 10-year period. A panel data regression analysis was employed to examine the effect of ESG practices on stock prices, using control variables such as firm size and market conditions. Granger causality test results revealed that Social factors significantly influence stock price performance (F = 0.0453, p = 0.0453), but there is no reverse causality (F = 0.9806, p = 0.9806). Social factors significantly impact environmental factors (F = 8.6470, p = 0.0004), while environmental factors do not influence social factors (F = 1.3701, p = 0.2593). Governance costs affect social factors (p = 0.0396), but social factors do not influence governance costs (p = 0.6289). The study concluded that social factors and governance expenditures have predictive power over stock price behavior, while the reverse does not hold. It is therefore recommended that bank management should ensure a balanced allocation of resources between corporate governance functions and CSR initiatives. Since corporate governance costs have a unidirectional impact on social factors, institutions must adopt cost-efficient governance mechanisms that do not crowd out funds for impactful social programs, which ultimately drive stock price appreciation.