ESG Risk in Times of Crisis: Evidence from the COVID-19 Pandemic

Abstract

This study compares the volatility of the S&P 500 ESG index and its conventional counterpart during the COVID-19 pandemic.  The conditional volatility of each index is generated from an EGARCH model, with these series then used in a vector autoregression.  Impulse response functions computed from the VAR show an increase in the conditional volatility of both the ESG and conventional index in response to various pandemic related shocks.  However, the impact on the ESG index is significantly less than that of the conventional index, providing further evidence backing the claim that socially responsible investments are less risky than other investments during times of economic crisis.