Environmental, Social, and Governance Factors in Emerging Markets: a Volatility Study

(Pages 704-715)

Michael de Marco1 and Gary van Vuuren2,*
1School of Economics Faculty of Commerce University of Cape Town Rondebosch Cape Town South Africa. 2Centre for Business Mathematics and Informatics North-West University Potchefstroom Campus South Africa.
DOI: https://doi.org/10.55365/1923.x2022.20.81


Orientation: Asset managers constructing an emerging market portfolio of stocks should, along with more traditionally risk metrics, consider ESG data in their due diligence and investment decision-making processes.
Research purpose: To determine whether a company’s higher relative focus on ESG incorporation results in the observation of lower levels of share price return volatility, as predicted by EWMA and GARCH models.
Study motivation: Institutional investors wish to understand the role that ESG data plays in mitigating the risk of emerging market portfolios and whether the results necessitate the incorporation of ESG data in due diligence and investment decision-making processes.
Research approach/design and method: Categorisation of emerging market stocks using ESG scores and return volatility predicted by EWMA and GARCH models allowed for the analysis of aggregate corporate market risk.
These volatilities paired with their respective annual ESG scores permitted a more company-specific view of this relationship.
Main findings: Companies with higher relative ESG Combined Scores exhibit lower levels of weekly volatility, but using annualised volatility weakens this relationship. The predictive ability of ESG scores to predict volatility is weak, and this weakens still further after the onset of crises, such as the COVID-19 global pandemic.
Practical/managerial implications: Incorporating ESG data into portfolio performance analysis could assist in mitigating corporate market risk. Contribution/value add: Most research considers the state of ESG investing in developed markets rather than companies domiciled in emerging markets. This work could provide a more complete perspective of the state of ESG investing.


Environmental, Social, and Governance; ESG scores; share price return volatility; emerging markets; corporate market risk.

JEL Classification:

D62, G11, G12, G23, M14, Q5

How to Cite:

Michael de Marco and Gary van Vuuren. Environmental, Social, and Governance Factors in Emerging Markets: a Volatility Study. [ref]: vol.20.2022. available at: https://refpress.org/ref-vol20-a81/

Licensee REF Press
This is an open access article licensed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/3.0/) which permits unrestricted, non-commercial use, distribution and reproduction in any medium, provided the work is properly cited.