Do Financial Markets Price Sustainability Activities?

With the increasing importance of sustainability, studies on this subject have increased in every field. One of the most important areas affected by sustainability is the financial market. Many new applications have emerged with the integration of markets into this concept. Firstly, the dimensions of sustainability emerged as environmental, social, and governance and formed the concept of ESG. Many concepts have developed, such as sustainability reports where ESG practices are published, sustainability indices that enable firms to monitor their ESG performance, and ESG scores where firms' sustainability activities are calculated by certain organizations. The purpose of this study is to determine whether the market prices firms' ESG activities. In order to find an answer to this question, sustainability indices, where firms' sustainability activities can be monitored, are analyzed. The BIST Sustainability Index, which tracks the sustainability performance of firms operating in Turkey, is used. The effect of the index on the stock returns of the firms included in the index is analyzed. In order to observe the long-term relationship, daily data between 04.11.2014 and 30.04.2024 are used. The model also incorporates control variables to enhance the reliability of the model and its results. First, a meaningful and explanatory model was obtained. Analysis of the results reveals a significant and positive relationship between sustainability activities and stock returns. This significant relationship provides an answer to the research question. In other words, the market positively prices sustainability activities. In this case, firms should integrate sustainability into all their operations. In this way, they will be able to create positive value, make environmentally sensitive contributions, and ensure social justice in the firm's environment as well as for its stakeholders.