Reconsidering Systematic Factors During the Covid-19 Pandemic – The Rising Importance of ESG

Abstract We investigate the importance of Environmental, Social and Governance (ESG) ratings in explaining different industry returns during the Covid-19 window. We build our ESG factor as the spread in returns between firms in the top ESG quartile and those in the bottom ESG quartile. The ESG factor shows to significantly explain industry returns in addition to the Fama-French factors. We also analyze the individual Environmental, Social, and Governance components of ESG. Environmental and Social dimensions are the main drivers of the ESG impact on different industries.