Join the club! Dynamics of global ESG indices convergence

We investigate the convergence behaviour of 18 ESG stock market indices from a global perspective. We rely on the convergence tests and clustering procedures by Phillips and Sul (2007, 2009) which are based on a time-varying nonlinear panel factor model. In particular, we find a structural break in May 2019. Prior to the break, we identify Brazil and China as co -diverging units and find some heterogeneity in relative convergence clusters for the remaining countries. After the break, we do not find only relative, but also level convergence amongst all considered countries in one single club. The structural break and its timing can be linked to significantly increased global investor attention for ESG.

Automated summary

This study investigates the convergence behavior of 18 ESG stock market indices from a global perspective. It finds a structural break in May 2019, with Brazil and China identified as co-diverging units prior to the break. Heterogeneity in relative convergence clusters is observed for other countries. After the break, not only relative convergence, but also level convergence among all considered countries in one single club is observed, which may be linked to significantly increased global investor attention for ESG.