This study investigates whether firms with stronger ESG performance are less exposed to the adverse effects of crude-oil price volatility on stock returns.
Using multi-factor panel models for S&P 500 firms, it shows that ESG activities behave as a volatility-dependent hedge: neutral or slightly negative in calm periods but increasingly protective during episodes of market stress.
The results highlight ESG’s dual role as both a risk-management signal and a credibility indicator. Firms in oil-sensitive sectors benefit most, suggesting that sustainable practices enhance resilience to commodity-driven shocks.
Abstract.
ESG activities are a forward-looking measure to prevent risks from negative externalities. Linking ESG scores with the crude oil market, we assess their mitigating effect on returns during periods of rising oil price volatility.
We examine the interplay between ESG scores and crude oil volatility's impact on returns. Interestingly, this interaction transforms ESG into an insurance-like hedge, protecting returns as volatility increases. Notably, we identify a pivotal turning point at relatively low volatility levels. Below this threshold, ESG activities lack effectiveness, but when volatility surpasses it, their hedging power becomes pronounced. This effect intensifies as volatility rises, rewarding ESG leaders more significantly. Our sectoral and quantile analyses corroborate these findings.
Overall, our findings support the role of ESG activities as a "safe haven" in times of financial turmoil, focusing its contribution to the interplay between ESG and oil volatility on periods of heightened uncertainty in the crude oil market.
Extending the equity-return analysis to corporate borrowing, this project examines how ESG engagement influences firms’ cost of debt during periods of high oil-market volatility.
Results indicate that firms with robust ESG profiles experience lower borrowing costs, particularly once they exceed a critical ESG-score threshold.
These findings introduce signalling theory into the ESG–finance debate: sustainability initiatives convey transparency and reduced credit risk to lenders, effectively serving as a conditional hedge in volatile markets.
Abstract.
We investigate how environmental, social, and governance (ESG) performance affects firms’ borrowing costs when crude oil price volatility rises. Using a large panel of S&P 500 firms, we find that higher ESG scores are systematically associated with lower cost of debt (CoD). At the same time, crude oil volatility increases CoD, but this effect is consistently dampened by strong ESG performance: each additional ESG point reduces the volatility-induced rise in borrowing costs by about 0.11%.
Interpreted through signalling theory, the results show that ESG operates as a credible signal of resilience, with its role becoming most evident during periods of heightened commodity risk. Our findings also highlight a new channel through which ESG affects corporate finance, linking sustainability performance directly to credit conditions. The results carry implications for firms’ financing strategies, credit risk assessment, and the design of sustainability disclosure standards.
This collaborative study extends the bivariate model of Avdis & Wachter (2017) linking stock returns and the dividend–price ratio.
We identify bull- and bear-market regimes and analyse how volatility states influence the equity premium.
My contribution focuses on empirical implementation and volatility-state forecasting, drawing on experience with regime-switching econometric models.
This study examines how oil-price shocks propagate across macroeconomic variables such as trade balances, inflation, and policy rates in exporter and importer economies.
Using structural VAR models, it finds that both groups exhibit similar stabilisation responses, challenging the traditional view of opposite effects.
These results highlight the systemic nature of oil-market volatility and its role in shaping monetary and exchange-rate policies.
Collectively, these projects form a consistent research pipeline from firm-level behaviour to macro-financial transmission.
My upcoming work expands this framework through Bayesian time-varying-parameter models and regime-switching approaches, bridging sustainability, volatility, and financial stability within a coherent empirical narrative.