The performance of ESG portfolios: Evidence from the Chinese market under COVID-19

Abstract

We investigate the impact of COVID-19 on the relationship between environmental, social, and governance (ESG) and portfolio performance in the Chinese stock market. The overall sample period is divided into three subperiods, namely, pre-, during-, and post-pandemic periods. Two different ESG stock portfolio strategies are adopted, that is, an equal-weighted portfolio strategy based on the negative screening method and an optimal portfolio using the classic mean–variance model. By conducting a regression analysis on the relationship between corporate ESG scores and stock returns, we find that ESG elements can lead to better financial performance during the pandemic. Meanwhile, in pre- and post-pandemic periods, ESG elements may have no effect or even a negative effect on financial performance. Our findings also underscore ESG's role in risk mitigation during turbulent periods.