Quantifying the effect of ESG-related news on Chinese stock movements

Current Environmental, Social, and Governance (ESG) rating systems encounter challenges due to their subjectivity, time lag, and inconsistent coverage, which present significant obstacles for investors in the stock market. In contrast, news reporting data, characterized by its objectivity, timeliness, publicity, and sociality, has been a crucial source of quality market information for investors. The potential of ESG-related news as a robust complement to the data sources used in existing ESG rating systems merits further exploration. This study investigates the impact of ESG-related news on the Chinese stock market, with the goal of providing compelling evidence for integrating news media into ESG assessments. By analyzing 32,296 ESG-related news articles covering 3643 companies in the Chinese market from 2015 to 2021, we utilize event study methodology to assess the market's abnormal returns in response to ESG-related news. Our findings suggest a significant market impact from ESG-related news, indicating that investors are increasingly attentive to information pertaining to ESG issues. The study also reveals that different attributes of ESG-related news have diverse effects on the market. Specifically, news with negative sentiments has the most significant impact, and investors demonstrate a stronger reaction to ESG-related news disseminated through unofficial media. Furthermore, the study highlights that enterprise heterogeneity affects the impact of ESG-related news, with companies in the secondary and tertiary industries showing higher sensitivity. Privately-owned enterprises are found to be more influenced by such news compared to state-owned enterprises. This study offers a novel perspective in evaluating corporate ESG performance using news media, proposing a more effective and objective method to assess and manage corporate sustainability in a dynamic market landscape.