The Impact of ESG Policies on the Secondary Market: Euidence from China

Abstract

In the wave of rapid development of ESG around the world, China enters into its rapid growth stage of ESG development since 2018. A series of essential national policies have been released in a more systematic way to guide the green transformation and development of the state. The release of policies brings the stock markets new information which is assumed to impact the investors’ sentiment and the movements of the stocks. However, few literatures is available on this topic. This study aims to investigate how the release of ESG national policies can affect the stock returns of the A-share market in China. The study employs event study as the methodology and can be divided in two stages. In the first stage, five core ESG strategies are selected to test how their announcement can impact the CSI300 and CSI500, two representatives from A-share market. In the second stage, the two first environment policies are selected further to test how their release can impact the involved industries like coal, oil and petrochemical, steel, finance and so forth.

The empirical results demonstrate that the release of national ESG policies generates impacts on the stock returns of both CSI300 and CSI500. The intensity of the policy impacts does not vary a lot between CSI300 and CSI500 but the direction does. Moreover, the release of national double-carbon policies generates impacts on the stock returns of involved industries. The impacts of the release of double-carbon policies on high energy consumption and high emission industries are mostly negative while those on the industries supporting the low-carbon practices are mostly positive.