The Relationship Between ESG Scores and Long-Term Stock Performance

ESG investing, evaluating companies based on environmental impact, social responsibility, and governance quality, has become a more important part of stock markets, as investors consider sustainability and ethical practices, along with traditional performance metrics. This paper seeks to answer the research question: How do ESG scores correlate with stock performance? To answer this, the paper utilizes historical stock price data sourced from Yahoo Finance and compares prices to ESG scores for publicly traded stocks to evaluate whether there is a correlation between ESG score and price. Using regression analysis across three performance metrics, including Sharpe ratio, standard deviation, and geometric stock return, the results show that there is no statistically significant correlation between ESG scores and stock performance. The findings suggest that, within this dataset, ESG ratings alone cannot reliably predict long-term financial returns or volatility, contributing to the ongoing debate about the importance and effectiveness of ESG investing strategies.