Breaking Bad News: The Market Impact of ESG Controversies in Finance

Abstract

This paper analyzes how daily stock returns respond to ESG controversy coverage at the firm level in news and social media. Our sample comprises all 73 financial firms in the S&P 500 from January 1, 2010 – December 31, 2024. Our results show that controversies negatively impact financial firms’ stock returns. Social and governance controversies exert stronger negative effects than environmental ones. Banks experience more significant controversy-related stock declines than other financial institutions, reflecting greater public scrutiny and regulatory exposure. In a robustness check, we observe that the negative effects of ESG controversies on stock returns remain stable across different periods (2010 – 2024, 2015 – 2024, and 2020–2024).