Do stock prices react to ESG sentiment?

by Emilie Kvam, Peter Molnar, Ingvild Wankel and Bernt Arne Ødegaard

Jun 2024

We study the links between corporate ESG (Environmental, Social and Governance) issues and stock prices. We create ESG related sentiment proxies using internet search and social media data (Google and Twitter). Using these innovations in ESG measures adds to current literature relying on ESG rankings, which are prone to misclassification. We find that companies with high ESG scores deliver low returns on average, but high short-term returns in times of heightened ESG concerns, measured both using heightened social media interest in ESG (at the company or economy-wide level), or positive ESG sentiment (from Twitter). While our results cannot be explained by investor sentiment (Baker and Wurgler, 2006) alone, they are consistent with the equilibrium models of Pastor et al. (2021) and Pedersen et al. (2021)

Keywords: ESG (Environmental, Social, Governance); Sentiment; Social Media; Stock Returns

JEL Codes: G10; G20

The paper at SSRN