ESG improvement as a critical driver of improved shareholder returns: A study of comparative portfolios

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Authors: Massimo Garbuio, Chris Leeson, Gloria Gheno
Cited by: 1
References: 47

Abstract

• Sustained ESG rating improvements matter more than static, one-off improvements. • ESG Improvers portfolios consistently exhibit strong risk-return profile. • Governance improvements drive resilience during market stress. This study explores the link between environmental, social, and governance (ESG) rating improvements and stock performance. Building a portfolio of stocks that showed sustained ratings improvement from 2019-2023, we find that this “ESG Improvers” portfolio delivers superior returns compared with randomly constructed portfolios, portfolios composed of companies with unchanged ESG ratings, and the ASX200 and S&P500 indices. Firms with stable or declining ESG ratings tend to underperform, while ESG Improvers consistently exhibit a stronger overall risk–return profile. These findings confirm the view that only sustained ESG improvements are related to stock performance and highlight the need for investors to actively scrutinize one-off ESG rating improvements.

Fields of Study & Subjects

Corporate Social Responsibility Reporting Sustainable Finance and Green Bonds Environmental Sustainability in Business

Publication details

Journal / source
Finance research letters
Publisher
Elsevier BV
Volume
99
Pages
109905–109905
Publication date
28 March 2026
Language
EN