Breaking Bad News: The Market Impact of ESG Controversies in Finance
Fouquau, Julien
Breaking Bad News: The Market Impact of ESG Controversies in Finance - 2026.
23
This paper analyzes how daily stock returns respond to Environmental, Social, and Governance (ESG) controversy coverage at the firm level in news and social media using time-series analysis. Our sample comprises all 73 financial firms in the S&P 500 from January 1, 2010, to December 31, 2024. Our results show that controversies negatively affect financial firms’ stock returns. Social and governance controversies exert stronger negative effects than environmental ones. Banks experience larger controversy-related stock declines than other financial institutions, reflecting greater public scrutiny and regulatory exposure. In robustness checks, we find that the negative effects of ESG controversies on stock returns persist across different periods (2010 – 2024, 2015 – 2024, and 2020 – 2024) and hold in panel analyses accounting for industry effects within financial institutions. These findings highlight the financial materiality of ESG risks and the importance for investors and regulators to monitor firms’ exposure to social and governance-related controversies closely. The results also suggest that financial institutions, particularly banks, should proactively manage reputational risks to maintain investor confidence. Classification JEL G12 G14 G21 G23
Breaking Bad News: The Market Impact of ESG Controversies in Finance - 2026.
23
This paper analyzes how daily stock returns respond to Environmental, Social, and Governance (ESG) controversy coverage at the firm level in news and social media using time-series analysis. Our sample comprises all 73 financial firms in the S&P 500 from January 1, 2010, to December 31, 2024. Our results show that controversies negatively affect financial firms’ stock returns. Social and governance controversies exert stronger negative effects than environmental ones. Banks experience larger controversy-related stock declines than other financial institutions, reflecting greater public scrutiny and regulatory exposure. In robustness checks, we find that the negative effects of ESG controversies on stock returns persist across different periods (2010 – 2024, 2015 – 2024, and 2020 – 2024) and hold in panel analyses accounting for industry effects within financial institutions. These findings highlight the financial materiality of ESG risks and the importance for investors and regulators to monitor firms’ exposure to social and governance-related controversies closely. The results also suggest that financial institutions, particularly banks, should proactively manage reputational risks to maintain investor confidence. Classification JEL G12 G14 G21 G23
Réseaux sociaux