From its high on February 19^th, 2020, the S&P 500 index lost more than one-third of its value in a little over a month as the potential human and economic consequences of the global pandemic began to be incorporated into share prices. In the wake of this COVID-19-induced stock pummeling, there were widespread claims being made by large investors and fund managers (such as Blackrock, Morningstar), purveyors of ESG data (such as MSCI), as well as by the financial press (including Fortune, the Financial Times, and the Wall Street Journal) that companies with higher environmental, social, and governance (“ESG”) performance scores were immunized against the pandemic-induced value destruction.

The notion that ESG activities contribute to stock price resilience during periods of crisis is premised upon the belief that corporate social responsibility activities help to build social capital and trust in the corporation. These bonds, the story goes, will motivate the company’s stakeholders (employees, customers, suppliers, financiers, government, society, etc.) to help the firm weather the challenges imposed by a crisis. Indeed, several studies of the 2008-2009 global financial crisis (“GFC”) purport to provide evidence of such downside risk protection. An alternative view of corporate social responsibility suggests that executives may choose to improve their company’s ESG scores at the expense of shareholders in order to build their own personal reputation. From this agency theory perspective, ESG investments are at best wasteful, and probably even harmful to shareholders (e.g., by increasing the propensity for management entrenchment). To the extent that investments in corporate social responsibility reflect poor management and/or agency problems, higher ESG scores could be an indication of potential hindrances to the firm’s resilience during challenging times. So which is it? Our study undertakes an extensive set of analyses in order to address this question in the context of U.S. equities during the current global pandemic.

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