Environmental, social, and governance (ESG) and idiosyncratic volatility: The COVID-19 pandemic and its impact on ESG-sensitive industries

This study provides an in-depth examination of the relationship between environmental, social, and governance (ESG) performance and the idiosyncratic volatility of Korean companies. In line with the risk-mitigation view, the study finds that strong ESG performance is associated with a reduction in a firm's idiosyncratic volatility. The impact of ESG performance on reducing firm volatility was particularly evident during the COVID-19 pandemic, highlighting the role of ESG performance in risk mitigation during crisis periods. The study also shows that companies with strong ESG performance in industries that are highly sensitive to ESG factors are particularly adept at reducing idiosyncratic volatility. These findings underscore the importance of ESG enhancement for both firm managers and policymakers, particularly within ESG-sensitive industries.

Automated summary

This study provides an in-depth examination of the relationship between environmental, social, and governance (ESG) performance and idiosyncratic volatility in Korean companies. The findings suggest that strong ESG performance is associated with a reduction in firm-specific volatility, especially during the COVID-19 pandemic. Companies with strong ESG performance in ESG-sensitive industries are particularly effective at mitigating idiosyncratic volatility. These findings highlight the importance of ESG enhancement for firm managers and policymakers.