SUSTAINABILITY SURPRISES: DO INVESTORS REACT TO ESG NEWS?

This study investigates the effect of news about environmental, social, and governance (ESG) issues on investor behavior, focusing on abnormal stock returns. The study conducts an empirical analysis of a comprehensive dataset of 3,448 ESG news events involving companies listed in major stock indices in Organization for Economic Co-operation and Development (OECD) nations between January 1, 2022, and December 31, 2023. The paper uses an event study methodology within the CAPM framework to calculate cumulative abnormal returns around announcement dates. The findings show that ESG news produces statistically significant abnormal returns within a narrow event window [-1, +1]. This suggests that investors immediately integrate sustainability-related information into company prices. However, this effect decreases in wider windows [-3, +3], showing that market reactions are temporary. Additional analysis demonstrates that the intensity of market reactions is not significantly different between positive and negative ESG news. This suggests that investors focus on the content and impact of ESG disclosures rather than their trend. In conclusion, the study provides empirical evidence that ESG news delivers short-term economic value to capital markets and significantly impacts investor behavior. The study contributes to the literature by offering a dynamic perspective on the processing and use of sustainability information in global financial markets.