Systematic risk of ESG companies listed on the Polish capital market in 2019-2022

Abstract

PURPOSE: The purpose of this paper is analysis the systematic risk of the constituent stocks of ESG-WIG for the period of 2019-2022, which also covers the Covid-19 period. The main hypothesis of this research is that ESG companies listed on Polish capital market are less risky than the market portfolio.

DESIGN/METHODOLOGY/APPROACH: Systematic risk in this article is measured as the beta coefficient (the ratio of the covariance of the rate of return of the examined financial instrument and the rate of return of the market portfolio to the variance of the rate of return of the market portfolio, alternatively as the product of the appropriate linear Pearson correlation and the ratio of standard deviations). The beta coefficient is also an estimator of the parameter of the simple linear regression and can be interpreted as financial flexibility or the sensitivity of returns on assets to market returns. Stocks with a beta greater than one are more volatile than the market and are known as aggressive stocks, they are more risky instruments. In contrast, stocks with a beta of less than one are less volatile than the market index and are known as defensive stocks – less risky instrument.

FINDINGS: The analysis of systematic risk for 53 ESG companies showed that companies with high ESG ratings have lower betas than market portfolio consisting of other companies listed on Warsaw Stock Exchange.

PRACTICAL IMPLICATIONS: Building investment portfolios with less risks.

ORIGINALITY/VALUE: Author’s research of systematic risk for ESG companies listed on Polish capital market. It is the first analysis of this type for this market.