ESG ratings in motion: the global market response to upgrades and downgrades

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Authors: Mikhail Vasenin, Savva Shanaev, Humnath Panta, Binam Ghimire
Cited by: 1
References: 57

Abstract

We employ a calendar-time portfolio approach to investigate the effects of ESG rating changes on a comprehensive sample of global stocks rated by MSCI between 2017 and 2021 (2,841 stocks, including 2,100 upgrades and 813 downgrades). Rating upgrades (downgrades) result in positive (negative) abnormal returns of approximately 1% per month, both statistically and economically significant, aligning with previous studies. These effects remain robust to holding period definitions, alternative factor models and weighting schemes, and they appear relatively consistent across sectors and regions becoming more synchronised since the COVID-19 pandemic. The market is shown to partially anticipate ESG rating upgrades but not downgrades. The impact of ESG rating changes on stock returns is particularly stronger for large firms, growth firms, and those operating in countries with low power distance. Overall, these findings add to the sustainable finance literature, especially on ESG rating heterogeneity, by revealing key determinants of the ESG–financial performance relationship.

Fields of Study & Subjects

Sustainable Finance and Green Bonds World Trade Organization Law Climate Change Policy and Economics

Publication details

Journal / source
Journal of Sustainable Finance & Investment
Publisher
Informa UK Limited
Volume
16
Issue
2
Pages
341–363
Publication date
6 January 2026
Language
EN