Impact of ESG Ratings on Stock Performance in Germany during the Covid-19 Crisis

Abstract

This bachelor thesis analyses the impact of ESG ratings on the stock performance of German companies during the Covid-19 crisis. The objective of this thesis is to find out whether ESG ratings affect the performance of a company positively or negatively or if there even is a significant correlation. A main research question and two sub questions have been formulated to fulfill the objectives, and as well, based on previous literature and different theoretical frameworks, three hypotheses were formed. The previous literature shows results that are indicating a lean towards the hypotheses, however there is no research about the impact of ESG scores on German companies during Covid-19. Additionally, there is no research about the three measurements that are used in this thesis during that time. The goal is to answer the hypotheses based on practical research. Forty-nine companies from the DAX and MDAX are analyzed. The ESG scores were extracted from MSCI. The data from the stock market was extracted for the time between the first of January 2020 and the first of June 2023 on a daily basis, from the Frankfurt Stock Exchange. The capital gain was calculated for each year and the CAGR for the entire period which will consider compounding effects. To calculate the volatility, the standard deviation was calculated as the fluctuations on a daily basis. The next step was to calculate beta for which the DAX and MDAX were used as benchmarks. After the calculations were done for each year, there was a correlation analysis between ESG scores and the three measurements capital gain, standard deviation and beta. The correlation was for each year and for the entire period for the DAX and MDAX separately. Afterwards a T-test was conducted to check the significance of the correlations. The results indicate that for the companies of the DAX there is a positive correlation between ESG and capital gain, a negative correlation between ESG and standard deviation and a negative correlation between ESG and beta. For the MDAX the correlations change significantly during the years from positive to negative and the other way around. In general, the correlations are slight to medium strong. The T-test revealed that only one correlation is statistically relevant. This research showed that there is a correlation between ESG scores and different measurements. Moreover, the market capitalization is an influencing factor since DAX companies are more strongly affected by ESG than MDAX companies. The theoretical models that are used to form the hypotheses, especially the safe haven theory seems to explain the reasons for the results. The hypothesis can be accepted for the DAX but not for the MDAX. The results of the T-test are due to the low correlation strength and small sample size which is why further research needs to be conducted.