ASSESSMENT OF THE RELATIONSHIP BETWEEN EXPECTED RETURN, RISK, ESG-SCORE AND SUSTAINABLE DEVELOPMENT GOALS OF COMPANIES
Abstract
As all interested stakeholders nowadays consider not only the level of expected return and risk, but also the company's ESG-score and the number of sustainable development goals it focuses on, all together they are more and more increasingly important characteristics of companies from an investment point of view. It is why today the study of the impact of such factors as ESG-score and the number of sustainability goals that the company focuses on on the level of expected return and risk of the company, as well as identification of the degree of correlation between these characteristics, are relevant. The selected companies are 20 large public international enterprises operating in different industries with liquid stocks and with low volatility and high expected dividend yield that form iSTOXX Global ESG Dividend Trend Index. Level of company’s expected return was calculated based on stock price at the beginning and at the end of 2023, while level of risk was determined based on the calculation of the standard deviation of the share return as of 2023. The information on the ESG-score of the companies analyzed is based on the rating of Morningstar Sustainalytics, a reputable leading independent company engaged in research, ratings and analytics in the field of ESG and corporate governance. The number of sustainability goals that each company focuses on was calculated based on an analysis of the sustainability sections of the companies' websites, as well as their annual reports, sustainability reports and integrated reports. The correlation analysis shows that there is a very weak negative correlation between the level of risk and expected return and between the level of expected return and the number of sustainable development goals. There is a weak negative correlation between the level of risk and the ESG-score, as well as between the level of expected return and the ESG-score. There is also a negative but moderate correlation between the level of risk and the number of sustainable development goals. In contrast, only the ESG-score and the number of sustainable development goals show a moderate positive correlation.
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